When does an anticipated change in future income lead to a change in consumption for consumption smoothers?
A)when the permanent income hypothesis fails
B)when the anticipated future income arrives in the paycheck
C)It never leads to a change in consumption.
D)when the consumption smoother first learns of the anticipated future change in income

Question

Quizplus · Accepted Answer

Consumption smoothers adjust their current consumption based on their expectations of future income changes. When they first learn of an anticipated change in income, they may adjust their current spending to smooth consumption over time, reflecting the permanent income hypothesis.

When Does an Anticipated Change in Future Income Lead to a Change