According to the permanent-income hypothesis, if consumers receive a one-time income bonus, then they will:
A) save most of it in the current year.
B) spend most of it in the current year.
C) spend one half of it and save one-half of it in the current year.
D) not alter their consumption or saving in the current year.

Question

Quizplus · Accepted Answer

The permanent-income hypothesis suggests that consumers base their consumption decisions on their long-term income expectations rather than on temporary changes in income. Therefore, if consumers receive a one-time income bonus, they are likely to save most of it, as it does not alter their long-term income expectations.

According to the Permanent-Income Hypothesis, If Consumers Receive a One-Time