The consumption theories proposed by Modigliani and Friedman suggest that during recessions consumers reduce
A)consumption and maintain saving.
B)saving and maintain consumption.
C)consumption and saving.
D)consumption and investment.

Question

Quizplus · Accepted Answer

Modigliani's Life-Cycle Hypothesis and Friedman's Permanent Income Hypothesis both suggest that consumers attempt to smooth consumption over their lifetime. During recessions, they would reduce saving to maintain their consumption levels, rather than reducing consumption significantly.

The Consumption Theories Proposed by Modigliani and Friedman Suggest That