According to the relative income hypothesis, consumption relations are irreversible over time. It means that when income falls during the cyclical downswing, the resultant fall in consumption is less than proportionate because individuals base their consumption patterns on previous levels of income. When income increases, consumption increases proportionately but when income falls below the previous peak, consumption does not fall proportionately. This is the ratchet effect
Dana05 answered the question on July 18, 2019 at 19:48
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