According to the life-cycle model, the average propensity to consume does not fall as income increases in the long run because:
A) wealth and income grow together.
B) as income increases wealth decreases.
C) saving is constant over the life cycle.
D) wealth is constant over the life cycle.

Question

Quizplus · Accepted Answer

The life-cycle model assumes that individuals save during their working years and then consume during their retirement years, implying that wealth and income grow together over the life cycle. Therefore, the average propensity to consume does not fall as income increases in the long run.

According to the Life-Cycle Model, the Average Propensity to Consume