According to the permanent income hypothesis, Lisa's consumption increases only when
A) her average lifetime income increases.
B) she saves more.
C) her income increases unexpectedly.
D) her current income increases.

Question

Quizplus · Accepted Answer

The permanent income hypothesis suggests that individuals base their consumption on their average lifetime income rather than their current income. Therefore, Lisa's consumption would only increase if her average lifetime income increases, as this would adjust her perception of her long-term financial situation.

According to the Permanent Income Hypothesis, Lisa's Consumption Increases Only