The Permanent-Income Theory of Consumption Asserts That People Prefer a Stable

question 47

Multiple Choice

The permanent-income theory of consumption asserts that people prefer a stable level of consumption throughout their lives and

• A)will forego temporary or transitory opportunities to obtain higher income and consumption
• B)calculate their level of consumption from the information they have regarding their average expected lifetime income
• C)will only change their consumption behavior significantly if there is a transitory change in their income
• D)this implies that the short-run mpc is greater than the long-run mpc
• E)therefore always save the same fraction of their current income

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