The life-cycle theory of consumption predicts that when Jason anticipates a higher income in the future, then Jason will
A) consume more and save less in the current period.
B) consume less and save more in the current period.
C) consume less and save less in the current period.
D) not change the amount of consumption or saving in the current period.

Question

Quizplus · Accepted Answer

According to the life-cycle theory of consumption, individuals plan their consumption over their lifetime based on their anticipated income in the future. Therefore, if Jason anticipates a higher income in the future, he would be more likely to consume more and save less in the current period, in order to maintain a similar level of consumption over his lifetime. This is because his expected future income would allow him to finance his future consumption needs without needing to save as much in the present.

The Life-Cycle Theory of Consumption Predicts That When Jason Anticipates