Which of the following is a feature of the 'Ratchet Effect' in consumption theory?
A. Consumption is independent of past income
B. Consumption falls symmetrically with income
C. Consumption rises with income but is resistant to falling when income declines
D. Only permanent income matters
Answer: Option C
Solution (By JKSSB Mock Tests)
The ratchet effect, associated with Duesenberry’s relative-income hypothesis, describes the asymmetry whereby consumption adjusts upward more readily than downward when income changes.
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