Suppose an individual experiences a $20,000 increase in real income and the individual believes this increase in income is permanent.Economic theory suggests that this individual's current consumption will

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According to the permanent income hypothesis (PIH), consumers adjust their consumption based on their long-term (permanent) income rather than transitory changes. Therefore, a $20,000 increase in permanent income is likely to result in an increase in consumption by an amount that is proportional to the increase in permanent income, which in this case is $20,000. Hence, the individual's current consumption will increase by at most $20,000.

Suppose an Individual Experiences a $20,000 Increase in Real Income