01:220:103 Study Guide - Final Guide: Open Market Operation, Deflation, Military Medal
2 Jul 2016
School
Department
Course
Professor
Document Summary
As prices rise in economy, the value of financial wealth declines and people respond to this by saving more and demanding fewer goods and services. Relative income hypothesis: james duesenberry: the percent of income you spend is a function of where you stand in income distribution. An individuals attitude to consumption and saving is dictated more by his income in relation to others than by abstract standard of living; the percentage of income consumed by an individual depends on his percentile position within income Permanent income theory: milton friedman: theory of consumer spending which states that people will spend money at a level consistent with their expected long term average income. A worker will only save if their current income is higher than the anticipated level of permanent income, in order to guard against future decline in income. Reserve requirement: the percentage of any deposit that must be held aside and not used to make loans or buy investments.
