Both the permanent-income and life-cycle hypotheses are based on the crucial assumption of ________ expectations.
A)rational
B)adaptive
C)backward-looking
D)forward-looking

Question

Quizplus · Accepted Answer

Both hypotheses assume that individuals make consumption and savings decisions based on their expectations of future income, which are forward-looking. Therefore, the correct choice is D: forward-looking expectations.

Both the Permanent-Income and Life-Cycle Hypotheses Are Based on the Crucial