Using the Neoclassical Model of Consumption, an Implication of the Permanent-Income

Multiple Choice

Using the neoclassical model of consumption, an implication of the permanent-income hypothesis is ________ because ________.

A) consumption smoothing; of diminishing marginal utility
B) that permanent income follows a random walk; of aggregate demand shocks
C) that wealth is constant; real interest rates are, more or less, constant
D) a low discount factor; of the borrowing constraint
E) no borrowing; income in the future is higher