Suppose an individual were to win $1,000 in Las Vegas.The permanent-income hypothesis predicts that the individual would NOT be likely to
A)put his winnings in the bank.
B)throw a party.
C)buy a dishwasher.
D)purchase some shares in a corporation.

Question

Quizplus · Accepted Answer

According to the permanent income hypothesis, people make consumption decisions based on their expected long-term income rather than their current income. Therefore, winning $1,000 in Las Vegas would not change their consumption habits in a significant way, and they would not be likely to throw a party or increase their spending on non-essential items. Instead, they would be more likely to save the money by putting it in the bank or investing it in something like shares in a corporation.

Suppose an Individual Were to Win $1,000 in Las Vegas