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?

The Life Cycle Hypothesis (LCH), developed by Franco Modigliani, postulates that individuals plan their consumption and savings behavior over their entire lifetime. According to this theory, an individual's consumption in any given period is not merely a function of current income, as suggested by the Absolute Income Hypothesis [1], but depends on the total resources available over their life, the expected rate of return on their accumulated capital, and their current age. The hypothesis assumes that individuals aim to maintain a stable level of consumption by borrowing during youth, saving during middle age, and dissaving during retirement. While the provided snippets focus on the basic Keynesian consumption function where consumption depends on current disposable income [1], the specific inclusion of 'age' and 'resources over time' is the hallmark of the Life Cycle Hypothesis, distinguishing it from the Permanent Income or Relative Income models.

Sources

1. [1] Macroeconomics (NCERT class XII 2025 ed.) > Chapter 4: Determination of Income and Employment > 4.1.1. Consumption > p. 54