The permanent income hypothesis highlights the phenomenon of ________.
A)the intertemporal budget constraint
B)a binding borrowing constraint
C)autonomous consumption
D)consumption smoothing

Question

Quizplus · Accepted Answer

The permanent income hypothesis suggests that individuals base their consumption decisions not just on their current income, but on their expected future income, or "permanent income." This leads to consumption smoothing, as individuals try to maintain a relatively stable level of consumption over time, even if their income fluctuates in the short term.

The Permanent Income Hypothesis Highlights the Phenomenon of ________