According to the Life-Cycle and Permanent-Income Hypotheses, If Future Income

question 22

Multiple Choice

According to the life-cycle and permanent-income hypotheses, if future income rises permanently, current consumption:

• A) falls.
• B) rises.
• C) does not change.
• D) changes in proportion to interest rate changes.
• E) Not enough information is given.

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Definitions:

Insufficient Capital

Insufficient Capital refers to a situation where an individual or entity lacks the necessary financial resources or funding to support its operations, investments, or growth plans.

Economic Growth

An increase in the total output of an economy. Growth occurs when a society acquires new resources or when it learns to produce more using existing resources.

Free Trade

The unrestricted purchase and sale of goods and services between countries without the imposition of constraints such as tariffs, duties and quotas.

Entrepreneurial Ability

The skill to innovate, take risks, and efficiently allocate resources to create and manage a business.