According to Modigliani's life-cycle hypothesis, the consumption function shifts upward as _____ increases.
A) income
B) wealth
C) the marginal propensity to consume out of income
D) the number of years until retirement

Question

Quizplus · Accepted Answer

Modigliani's life-cycle hypothesis suggests that consumption at any point in time is determined by an individual's lifetime income and wealth, not just their current income. Therefore, as wealth increases, the consumption function shifts upward because individuals are expected to spread their wealth over their lifetime, leading to an increase in consumption.

According to Modigliani's Life-Cycle Hypothesis, the Consumption Function Shifts Upward