Which of the following is a feature of the 'Relative Income Hypothesis' of consumption associated with Duesenberry?
A. Consumption is independent of social comparisons
B. Consumption depends on an individual’s income relative to the incomes of others and on past peak income
C. Only permanent income matters
D. Consumption depends only on absolute current income
Answer: Option B
Solution (By JKSSB Mock Tests)
Duesenberry’s relative-income hypothesis posits that consumption depends on the individual’s rank in the income distribution and on the highest income previously attained (ratchet effect).
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