Permanent Income Hypothesis

Permanent Income Hypothesis

Permanent income hypothesis is a theory of consumer spending which states that people will spend money at a level consistent with their expected long term average income (Investopedia, 2018). The hypothesis proclaims that consumption depends upon not absolute income or relative income, but the permanent income.

Meaning and Concept

Assumptions or Propositions

Mathematical Derivation

Figurative analysis

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Suggested Readings:

Vaish, M.C.(2010). Macroeconomic Theory. (14th Ed.). New Delhi: Vikas Publishing House Pvt. Ltd.