According to the Permanent-Income Hypothesis

question 6

Multiple Choice

According to the permanent-income hypothesis,

• A) the present value of lifetime consumption equals the present value of lifetime income.
• B) the income earned in a lifetime will be evenly divided between consumption and saving.
• C) household consumption depends on income that households expect to receive each year, and financial markets are used to smooth consumption in response to changes in transitory income.
• D) households use financial markets to transfer funds from periods when income is high to periods when income is low.

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Definitions:

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A payroll schedule where employees receive their wages twice a month, often on predetermined dates.

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