According to the permanent income hypothesis, a temporary and relatively small increase in income would
A) cause a large increase in consumption.
B) cause no change in consumption.
C) cause an increase in consumption and saving by the same amount.
D) cause a decrease in consumption and saving by the same amount.

Question

Quizplus · Accepted Answer

The permanent income hypothesis suggests that people will not significantly change their consumption patterns based on temporary and small increases in income. Therefore, a temporary and relatively small increase in income would cause no change in consumption according to this theory.

According to the Permanent Income Hypothesis, a Temporary and Relatively