The Life Cycle hypothesis suggests that people base their consumption on their:
A)current income.
B)average lifetime incomes rather than their current income.
C)temporary income.
D)future income.
E)past income.

Question

Quizplus · Accepted Answer

The Life Cycle hypothesis states that people base their consumption not on current income, but on their average lifetime incomes, including future incomes and incomes from the past. This means that people may save or borrow in order to smooth their consumption over their lifetime.

The Life Cycle Hypothesis Suggests That People Base Their Consumption