Present spending would not significantly change given a current one off wage bonus according to the:
A) Permanent income theory
B) Predictable income theory
C) Present income theory
D) Potential income theory

Question

Quizplus · Accepted Answer

The Permanent Income Hypothesis, proposed by Milton Friedman, suggests that people will base their consumption on their long-term average income rather than temporary changes. Therefore, a one-off wage bonus is unlikely to significantly alter their spending habits, as it does not affect their perceived long-term financial situation.

Present Spending Would Not Significantly Change Given a Current One