According to the Current Income Hypothesis

question 161

Multiple Choice

According to the current income hypothesis,

• A) a change in income regarded as temporary will not affect consumption much since it will have little effect on average lifetime income.
• B) regardless of whether a change in disposable personal income is permanent or temporary; people will change consumption by moving along the consumption function.
• C) a change in income regarded as permanent will have a greater impact on saving than on consumption.
• D) a change in income regarded as temporary will have a greater impact on saving than on consumption.

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Definitions:

Months

Units of time, each roughly equivalent to one twelfth of a year, used in planning and organizing.

Rate Of Interest

The percentage of the principal that will be charged for a particular period of time, normally one year.

Interest

The charge for borrowing money or the return on deposited funds, typically expressed as a percentage rate over a period of time.

Simple Annual Interest Rate

The percentage of the principal amount that will be charged or earned as interest, calculated once per year without compounding.