absolute income hypothesis

(1936)

Absolute Income Hypothesis is proposed by English economist John Maynard Keynes (1883-1946), and has been refined extensively during the 1960s and 1970s, notably by American economist James Tobin (1918-2002).

The theory examines the relationship between income and consumption, and asserts that the consumption level of a household depends on its not relative but absolute level of income. As income rises, the theory asserts, consumption will also rise but not necessarily at the same rate.

In its developed form, absolute income hypothesis is still generally accepted.

Also see: relative income hypothesis, permanent income hypothesis, life-cycle hypothesis

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