Suppose consumers anticipate that their wealth will grow over time,because of interest earnings and capital gains.According to the life-cycle hypothesis,such optimism should cause current consumption to be ________.
A)relatively low
B)relatively insensitive to changes in income
C)rising as individuals near retirement age
D)relatively high

Question

Quizplus · Accepted Answer

The life-cycle hypothesis suggests that individuals plan their consumption over their lifetime, based on their anticipated income and wealth. If they anticipate that their wealth will grow over time, they may be more willing to spend more on current consumption, as they expect to be able to save more in the future. Therefore, the answer is relatively high consumption.

Suppose Consumers Anticipate That Their Wealth Will Grow Over Time,because