Consumption Theory: Expected Income Dependence

The question asks which consumption theory does NOT link consumption to expected income. Let's analyze the main approaches:

Keynes’ Consumption Theory

This theory, proposed by John Maynard Keynes, states that consumption expenditure is primarily determined by current disposable income. While expectations can influence spending, the core relationship is direct: as current income rises, consumption rises, but by less than the increase in income. It does not explicitly base consumption on long-term or expected future income.

Friedman’s Permanent Income Hypothesis

Milton Friedman's theory suggests that consumption depends on an individual's concept of permanent income, which represents their long-run average expected income. Current income is seen as a sum of permanent income and a temporary component. Therefore, this approach explicitly treats consumption as dependent on expected income.

Life Cycle Hypothesis (LCH)

Developed by Franco Modigliani, the LCH posits that individuals plan their consumption and savings over their entire lifetime to smooth consumption. Consumption is based on the expected income over an individual's entire life (or working life) and their wealth. This approach fundamentally relies on expected future income.

Conclusion

Based on the analysis:

• Keynes’ approach focuses on current income.
• Friedman’s approach focuses on permanent (expected) income.
• The Life Cycle approach focuses on lifetime (expected) income.

Therefore, Keynes’ approach is the one that does not treat consumption as dependent upon expected income.