Because people cannot perfectly foresee income changes over their lifetimes, consumption should:
A) be smooth.
B) be predictable.
C) be constant throughout one's lifetime.
D) follow a random walk.
E) rise throughout one's lifetime.

Question

Quizplus · Accepted Answer

According to the Permanent Income Hypothesis, consumption should follow a random walk because people adjust their consumption based on new information about their lifetime income, which is unpredictable.

Because People Cannot Perfectly Foresee Income Changes Over Their Lifetimes