Consumption is said to follow a random walk if:
A) consumers have rational expectations.
B) consumption is proportional to permanent income.
C) changes in consumption are unpredictable.
D) changes in consumption produce secular stagnation.

Question

Quizplus · Accepted Answer

If consumption follows a random walk, it means that changes in consumption are unpredictable and do not follow any discernible pattern or trend. This implies that consumers are not able to accurately forecast their future consumption levels or adjust their consumption behavior in response to changes in income or other economic variables, leading to erratic and volatile consumption patterns.

Consumption Is Said to Follow a Random Walk If