The fundamental lesson of the life-cycle and permanent-income hypotheses is that:
A) individuals smooth their consumption patterns over their lifetimes.
B) individuals vary their consumption patterns over their lifetimes.
C) individuals' consumption patterns vary as their incomes change.
D) individuals' consumption changes with changes in their temporary incomes.
E) taxes are ineffectual.

Question

Quizplus · Accepted Answer

The life-cycle and permanent-income hypotheses both suggest that individuals aim to smooth their consumption patterns over their lifetimes. This means that they try to maintain a constant level of consumption regardless of temporary fluctuations in their incomes. This idea is central to the lesson of these hypotheses.

The Fundamental Lesson of the Life-Cycle and Permanent-Income Hypotheses Is