According to the life-cycle theory of consumption, what should have occurred after the stock market crash of 1987?
A)a decrease in current consumption
B)no change in current consumption since only nominal wealth was lost
C)no change in aggregate consumption since most people do not invest in the stock market
D)an increase in consumption since people were afraid to save
E)both B and C

Question

Quizplus · Accepted Answer

According to the life-cycle theory of consumption, people consume more when they think their permanent income has increased, therefore, the loss of wealth in the stock market crashes, perceived as a permanent loss, leads to a decrease in current consumption.

According to the Life-Cycle Theory of Consumption, What Should Have