Why does a temporary change in income lead to only a small change in consumption for a consumption smoother?
A)The MPC always tends to be low.
B)The consumer prefers to focus on current consumption rather than future consumption.
C)Temporary increases in income are heavily taxed.
D)The consumer tends to spread a temporary spike in income over the lifetime of the consumer.

Question

Quizplus · Accepted Answer

Consumption smoothers tend to spread out any temporary increases in income over their lifetime rather than spending it all at once. This is known as income smoothing.

Why Does a Temporary Change in Income Lead to Only