According to the life-cycle theory of consumption, an individual's
A)mpc out of wealth is fairly large
B)mpc out of labor income increases with increasing age, until it becomes zero at retirement age
C)mpc out of transitory income is fairly small
D)level of consumption will decrease if his/her retirement age is increased
E)none of the above

Question

Quizplus · Accepted Answer

The life-cycle theory of consumption suggests that individuals smooth out their consumption over their lifetime, anticipating periods of higher and lower income. This implies that the marginal propensity to consume (mpc) out of transitory income (unexpected, short-term income changes) is fairly small, as individuals prefer to maintain a stable consumption pattern rather than adjust significantly to temporary income changes.

According to the Life-Cycle Theory of Consumption, an Individual's