Option 1, the Absolute Income Hypothesis, proposes that an individual`s consumption in any given time period depends solely on their current level of income. It suggests that people spend a consistent proportion of their income, regardless of their age or other factors.

Option 2, the Relative Income Hypothesis, argues that an individual`s consumption is influenced by their income relative to others in society. This hypothesis suggests that people tend to spend more when their income is higher compared to their peers.

Option 3, the Life Cycle Hypothesis, is the correct answer. This hypothesis posits that an individual`s consumption is determined by three factors: the resources available to them, the rate of return on their capital, and their age. It suggests that people adjust their consumption patterns throughout their lifetime based on these factors. For example, individuals are more likely to save when they are younger and have fewer resources, and spend more when they are older and have accumulated more wealth.

Option 4, the Permanent Income Hypothesis, proposes that people base their consumption on their long-term average income rather than their short-term income fluctuations. It suggests that individuals adjust their spending based on their expectations of future income rather than their current income.

Therefore, the correct answer is option 3, the