Page 78 - DECO402_Macro Economics

Unit-8: Relative Income Hypothesis

APC reduce of every persons related with poor and rich family. So, when income increase, Notes
then consumption function will not shift up from C to C
S1 S2
4. Reversible consumer Behaviour: According to Michal Ivenj, “Consumer behavior is slowly-
slowly change not fully unchanged. Then as more time expend from last maximum level,
current consumption of last maximum income status will as low effected.” If we know it also
that how any consumer had to spend on last maximum income status, then it is not possible
to know that now how he will spend.
5. Neglect of other Factors: Present principle is bases on assumption that the change in
expenditure of consumer is related with his last high income level. This principle is weak
according that it neglects the other component that affects the consumer-behaviour like
updating new consumer things, changes in age-structure, urbanizations and asset holder.

Task Express his idea on Relative income Hypothesis.

6. Consumer Preferences do not Depend on other: The unreal assumption of that principle
is that consumer preferences is dependent on each other according to it the expenditure
of any consumer is related with the consumption
structure of his rich neighbour. But it is not always.
By the direct study of Prof. George Katona get that
expectancy and nature are important in consumer
expenditure. He says that the nature of income
–expectancy and asset perception based on the
status of ambition is more affected to consumer
expenditure relation in comparison to display
effect.
7. Reverse Lighting Bolt Effect: Prof. Smith and Pro
Jackson criticizes the Dussenberry on the bases of
their experience prove that the income is recovering
after depression it is no because of Ratchet effect but Fig. 8.2
the consumption experience of consumer is just like ‘reverse lightning bolt effect’. It is because
that consumer increases his consumption on increasing income slowly-slowly because of
‘irregular habit stability’ after depression. It is show in figure 8.2 where consumption status
shows with increasing income by arrow as the reverse lightning bolt.

Self Assessment
State whether the following statements are True or False:
7. Though the principle of Dussenberry solves the direct opposition among short period and
long period study.
8. The relative income assumption is that income and consumption are rationally increased.
9. Consumption and income are directly related.
10. There is always rational increment in consumption from the increment in income on full
employment status.

LOVELY PROFESSIONAL UNIVERSITY 71