Get premium membership and access questions with answers, video lessons as well as revision papers.

Describe the ratchet effect

      

Describe the ratchet effect

  

Answers


Dana
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


Next: Describe the absolute income hypothesis of consumption
Previous: What factors determine consumption

View More Economics Questions and Answers | Return to Questions Index


Learn High School English on YouTube

Related Questions