What is the hypothesis of permanent income?

Permanent income hypothesis is an economic theory that has to do with how consumers will structure their expenditure habits. The basis of this idea is that consumers decide to ensure their expenses on all types of goods and services based on their expectations to create a certain average income in the long run. In the perception of an individual consumer, this projection of the expected income becomes a firm or permanent in the way they perceive their expenditure power, as well as their ability to postpone part of their earnings for savings and other types of investment.

The first proposed in 1957 by Milton Freidman, an economist who was also the recipient of the Nobel Prize, one of the characteristic features of the permanent income hypothesis is that changes in consumers' attitudes and savings can be difficult because each consumer will respond to the same number of economic circumstances. While a given situation may one challenge one to reduce expenditure and odkHe luked more income for savings, the same set of circumstances to motivate another consumer to further purchase in anticipation that he would not be able to afford these goods later.

This focus on individuality in the permanent income hypothesis is important in terms of admission of economic policy that can help control the course of the national or even local economy. Assuming that a policy established by the government helps to reverse unfavorable economic trends and increase the flow of income in general, some consumers will continue to save as if the crisis did not pass, perhaps because of fear of repetition of the recession period in the near future. Others will respond to increased income in the economy with modestly growing expenditures and others will continue to expenditure at levels that are similar to a delightful period in the past.

debates on the viability of permanent income hypothesis continue. Proponents claim that the concept is based on the dataItem, which show the nature of how consumers regulate the habits of expenditure based on their perception of their earnings. Detectives of permanent intake hypothesis tend to note that the perception of economic factors, including expenditure and savings, are very different from the past decades and that this particular approach may be less relevant to how consumers perceive their income potential in today's economic climate.