Which of the Following Is NOT Consistent with the Permanent

question 226

Multiple Choice

Which of the following is NOT consistent with the permanent income hypothesis?

• A)The theory would predict that people's consumption would be greater than their income until their mid to late 20s.
• B)A person who won the lottery would spend at least 50 percent of their winnings in the first year.
• C)Consumption is greater than income when people reach old age.
• D)People gear their consumption to their expected earnings more than to their current income.

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Definitions:

Debt to Stockholders' Equity Ratio

A financial ratio that measures the proportion of a company's total debt to its shareholders' equity, indicating the financial leverage of the company.

Current Ratio

The Current Ratio is a measure of liquidity that assesses a company's capacity to cover short-term liabilities or debts due within the next year.

Capital Lease

A lease agreement that is treated like an asset purchase for accounting purposes because it meets certain criteria, leading to the lessee recognizing the leased asset on their balance sheet.

Operating Lease

A lease agreement allowing the use of an asset without transferring the risks and rewards of ownership, typically used for shorter-term leases or assets that are rapidly updated or replaced.