2019 · Q39
Which one of the following hypotheses postulates that individual's consumption in any time period depends upon resources available to the individual, rate of return on his capital and age of the individual?
General KnowledgeIndian Economy
- AAbsolute Income Hypothesis
- BRelative Income Hypothesis
- CLife Cycle Hypothesis
- DPermanent Income Hypothesis
Explanation
The Life Cycle Hypothesis, associated with Franco Modigliani, holds that an individual's consumption in any period depends on the total resources available over his lifetime, the rate of return on capital, and his age. It explains saving behaviour over the life cycle - borrowing when young, saving in middle age, and dissaving in old age. The Absolute, Relative and Permanent Income hypotheses use different determinants. Hence option C is correct.