The fundamental lesson of the Life Cycle and Permanent Income hypotheses is that:
A)individuals smooth their consumption patterns over their lifetime.
B)individuals vary their consumption patterns over their lifetime.
C)individuals' consumption patterns vary as their income changes.
D)individuals' consumption changes with changes in their temporary income.
E)taxes are ineffectual.

Question

Quizplus · Accepted Answer

The Life Cycle and Permanent Income hypotheses suggest that individuals smooth their consumption patterns over their lifetime, meaning they adjust their spending in response to their expected lifetime income rather than their current income. This allows individuals to maintain a consistent standard of living throughout their lifetime, despite fluctuations in income.

The Fundamental Lesson of the Life Cycle and Permanent Income