Absolute Income Hypothesis

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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.