Purchase Solution

Permanent-Income Hypothesis

Not what you're looking for?

Ask Custom Question

Please help with the following problem.

In mid-1968, the government imposed a 10% income tax surcharge on personal and corporate income to pay for the costs of the Vietnam War. It was widely believed that the surcharge was temporary, and in fact it was removed in mid-1970. Based on the permanent income hypothesis, what would you expect to happen to the personal saving rate in late 1968, 1969, the first half of 1970, and the last half of 1970?

Purchase this Solution

Solution Summary

Permanent-Income Hypothesis is summarized in this problem. References are included in this solution.

Solution Preview

Permanent-Income Hypothesis
This theory is propounded by Milton Friedman in 1957.
Over their lives, people try to spread their spending more evenly than their INCOME. The permanent income hypothesis, developed by MILTON FRIEDMAN, says that a person's spending decisions are guided by what they think over their lifetime will be their AVERAGE (also known as permanent) income. Hence the theory suggests that consumers try to smooth out consumer spending based on their estimates of ...

Purchase this Solution


Free BrainMass Quizzes
Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.