According to the permanent income hypothesis,permanent income is to ________ as transitory income is to ________.
A)consumption;saving
B)certain;hypothetical
C)wealth;gambling
D)saving;borrowing

Question

Quizplus · Accepted Answer

According to the permanent income hypothesis, permanent income is the average level of income that a person expects to earn over a long period of time. Transitory income, on the other hand, is the income that fluctuates from year to year due to factors such as changes in employment or unexpected windfalls. The hypothesis suggests that people base their consumption decisions on their permanent income rather than their transitory income, and therefore changes in transitory income will not have much effect on consumption. Instead, changes in permanent income will have a much greater effect on consumption decisions. Therefore, permanent income is to consumption as transitory income is to saving.

According to the Permanent Income Hypothesis,permanent Income Is to ________