Which of the following is a characteristic of the 'Permanent Income Hypothesis' of consumption?
A. Consumption depends only on current income
B. Consumption depends primarily on long-run average or permanent income
C. Consumption is independent of income
D. Only transitory income determines consumption
Answer: Option B
Solution (By JKSSB Mock Tests)
According to Milton Friedman's permanent income hypothesis, individuals base their consumption on permanent (expected long-run) income rather than on current measured income.
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