What is the permanent income hypothesis?
A)the idea that the marginal propensity to consume does not change over time
B)the idea that people choose how much to consume based on their long-term average income
C)the idea that temporary changes in income lead to the largest changes in total consumption
D)the idea that people choose how much to consume based on their current income

Question

Quizplus · Accepted Answer

The permanent income hypothesis is the idea that people choose how much to consume based on their long-term average income, rather than their current income. It suggests that temporary changes in income have only a small impact on consumption levels, while more permanent changes in income have a larger impact. Thus, the best answer is B.

What Is the Permanent Income Hypothesis