Franco Modigliani's answer to Simon Kuznets's puzzle regarding long-term constancy of the average propensity to consume is that:
A) the average propensity to consume depends on the wealth-to-income ratio, and income and wealth tend to grow together over time.
B) both rich and poor individuals have the same average propensity to consume.
C) demographic shifts have acted to just cancel out movements in the average propensity to consume.
D) every consumer consumes all of his or her income over a lifetime, so the average propensity to consume is constant at one.

Question

Quizplus · Accepted Answer

Modigliani's explanation for the long-term constancy of the average propensity to consume is that it depends on the wealth-to-income ratio, and since income and wealth tend to grow together over time, the average propensity to consume remains relatively constant.

Franco Modigliani's Answer to Simon Kuznets's Puzzle Regarding Long-Term Constancy