Jose has spent most of his life in the top two quintiles of income distribution, although he did spend a year without earned income when he lost his job during a recession. Which of the following ways of thinking about inequality explains why someone might make the observation that Jose's living standard did not vary as much as his income varied?

Question

Quizplus · Accepted Answer

Permanent income theory suggests that individuals base their consumption on an average of their expected lifetime income rather than current income, which can explain why Jose's living standard remained stable despite fluctuations in his income.

Jose Has Spent Most of His Life in the Top