Which of the following is NOT a reason permanent income is a better measure of living standards than annual income? A) Annual income typically changes as an individual ages. B) Inc... Which of the following is NOT a reason permanent income is a better measure of living standards than annual income? A) Annual income typically changes as an individual ages. B) Increases and decreases in annual income cancel each other out over time. C) Incomes for people in different professions vary wildly. D) Permanent income considers short-term fluctuations exclusively.
Understand the Problem
The question is asking to identify which statement is incorrect regarding why permanent income serves as a better indicator of living standards compared to annual income. The key concepts involve understanding the differences between permanent and annual income and their implications for assessing living standards.
Answer
D) Permanent income considers short-term fluctuations exclusively.
The final answer is D) Permanent income considers short-term fluctuations exclusively.
Answer for screen readers
The final answer is D) Permanent income considers short-term fluctuations exclusively.
More Information
Permanent income is a concept that smoothens out short-term income changes over time and focuses on an individual's average long-term income potential, rather than short-term fluctuations. Therefore, option D is not a correct reason as permanent income does not focus exclusively on short-term fluctuations.
Tips
A common mistake is confusing short-term and long-term income perspectives. Remember, permanent income aims to provide a more stable view by considering long-term income trends.
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