The permanent income hypothesis implies that consumers whose incomes exceed their permanent consumption will engage in:
A)borrowing.
B)dissaving.
C)saving.
D)not paying taxes.

Question

Quizplus · Accepted Answer

According to the permanent income hypothesis, consumers base their consumption decisions on their expected permanent income, rather than their current income. Thus, if their current income exceeds their expected permanent income, they will save the excess rather than engaging in borrowing or dissaving. Therefore, the correct answer is C) saving.

The Permanent Income Hypothesis Implies That Consumers Whose Incomes Exceed