Which of the following theories predicts that current consumption increases when a person expects an increase in future income?
A) the life-cycle theory of consumption
B) the permanent income hypothesis
C) the Keynesian theory of consumption
D) all of the above

Question

Quizplus · Accepted Answer

All of the above theories suggest that current consumption can increase with the expectation of higher future income. The life-cycle theory posits that individuals plan their consumption and savings behaviour over their lifetime, taking into account their future income. The permanent income hypothesis suggests individuals adjust their consumption based on their long-term income expectations rather than just their current income. The Keynesian theory, while primarily focused on the relationship between current income and consumption, also acknowledges that expectations of future income can influence current consumption decisions.

Which of the Following Theories Predicts That Current Consumption Increases