Question

The permanent income hypothesis suggests that consumer:

a. spending is made up of an autonomous amount and an amount dependent on disposable income.
b. savings depends on one's lifetime income.
c. spending is smoothed each month in response to changes in their current disposable income.
d. spending depends on income people expect over the long term, rather than on current income.

Answer 1

Answer: d. spending depends on income people expect over the long term, rather than on current income.

Step-by-step explanation:

The permanent income hypothesis states that people will spend money at a level equal to their permanent income which is their expected long-term average income.

The consumption function states that consumption is equal to autonomous consumption and consumption is dependent on disposable income.

The savings function shows the relationship between savings and income.