Economics · Consumption Function
The 'Ratchet Effect' in Duesenberry's Relative Income Hypothesis demonstrates that:
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Consumption changes symmetrically with every increase or decrease in income.
- 2Individual consumption depends solely on future expected income.
- 3When income decreases, consumption remains completely constant.
- 4When people's income decreases, their consumption does not decline proportionately.✓
Correct answer
When people's income decreases, their consumption does not decline proportionately.
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