For this question,ignore tax considerations of each of the following.Assume that consumption decisions are made according to the permanent income theory.Which of the following would lead to the smallest increase in current consumption?
A)winning $10,000 in the lottery
B)inheriting $10,000 from a relative
C)obtaining $10,000 by winning a lawsuit
D)getting a one-time $10,000 bonus from your employer
E) all of the above

Question

Quizplus · Accepted Answer

According to the permanent income theory, individuals base their consumption on their expected long-term average income. Since all the options listed (lottery winnings, inheritance, lawsuit winnings, and a one-time bonus) are one-time, non-recurring increases to income, they would all lead to a similarly small increase in current consumption, as they do not affect the individual's long-term income expectations.

For This Question,ignore Tax Considerations of Each of the Following