It was put forward by Friedman. It states that consumption depends on permanent income. Permanent income is the present value of the expected flow of long term income. According to the hypothesis, permanent income is proportional to permanent consumption. Measured income is made up of permanent income and transitory income. Transitory income is the unexpected fall or rise in income. It is the difference between measured income and permanent income. Measured consumption is also made up of permanent consumption and transitory consumption. Thus the basic consumption function is a specific function in permanent income
Dana05 answered the question on July 18, 2019 at 19:52
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