Description
What is the exact nature of the consumption function? Can this term be defined so that it will be consistent with empirical evidence and a valid instrument in the hands of future economic researchers and policy makers? In this volume a distinguished American economist presents a new theory of the consumption function, tests it against extensive statistical J material and suggests some of its significant implications.
Central to the new theory is its sharp distinction between two concepts of income, measured income, or that which is recorded for a particular period, and permanent income, a longer-period concept in terms of which consumers decide how much to spend and how much to save. Milton Friedman suggests that the total amount spent on consumption is on the average the same fraction of permanent income, regardless of the size of permanent income. The magnitude of the fraction depends on variables such as interest rate, degree of uncertainty relating to occupation, ratio of wealth to income, family size, and so on.
The hypothesis is shown to be consistent with budget studies and time series data, and some of its far-reaching implications are explored in the final chapter.
Chapter
2. A Formal Statement of the Permanent Income Hypothesis
3. The Relation between Measured Consumption and Measured Income
CHAPTER IV. Consistency of the Permanent Income Hypothesis with Existing Evidence on the Relation between Consumption and Income : Budget Studies
1. Temporal Changes in Inequality of Income
2. Consumption-Income Regressions for Different Dates and Groups
b. Differences among Countries
c. Consumption of Farm and Nonfarm Families
d. Occupational Characteristics of Families
e. Negro and White Families
f. A Digression on the Use of Partial Correlation in Consumption Research
4. The Effect of Change in Income
b. The Survey of Consumer Finances Data
c. The Significance of the Comparisons
Appendix to Section 4: The Effect of Change in Income on the Regression of Consumption on Income
1. Permanent Income Change of Same Absolute Amount
2. Permanent Income Change of Same Percentage
CHAPTER V. Consistency of the Permanent Income Hypothesis with Existing Evidence on the Relation between Consumption and Income: Time Series Data
1. Recent Long-period Estimates of Aggregate Savings for the United States
2. Regressions of Consumption on Current Income
a. Effect of Period Covered
b. Effect of Form of Data
c. The Relation between Time Series and Budget Elasticities
3. Regressions of Consumption on Current and Past Income
a. Functions by Modigliani, Duesenberry, and Mack
b. Alternative Functions Fitted to Data for a Long Period
Appendix to Section 3: Effect on Multiple Correlation of Common Errors in Measured Consumption and Current Income
CHAPTER VI. The Relation Between the Permanent Income and Relative Income Hypotheses
1. Relative Income Status Measured by Ratio of Measured Income to Average Income
2. Relative Income Status Measured by Percentile Position in the Income Distribution
3. The Basis for the Relative Income Hypothesis
4. The Relative versus the Absolute Income Hypothesis
a. Continuous Budget Data
b. Geographical Budget Comparisons
c. Summary Evaluation of Evidence
CHAPTER VII. Evidence from Income Data on the Relative Importance of Permanent and Transitory Components of Income
1. A Method of Estimating Py
2. Empirical Evidence on Py
3. Comparison of Estimates of Py with Estimated Income Elasticity of Consumption
4. Correlation of the Ratio of Savings to Income in Consecutive Years
Appendix: Correlation between Savings Ratios in Two Consecutive Years
CHAPTER VIII. A Miscellany
1. Regression of Income on Consumption
2. Application of Permanent Income Hypothesis to Individual Categories of Consumption
3. Relevance to the Analysis of the Distribution of Income
4. Connection between the Permanent Income Hypothesis and the Distribution of Wealth
5. Additional Tests of the Permanent Income Hypothesis
CHAPTER IX. Summary and Conclusion
1. Summary Statement of Hypothesis
2. Evidence on the Acceptability of the Permanent Income Hypothesis
3. Generalizations about Consumer Behavior Based on the Hypothesis
4. Implications of the Hypothesis for Research
5. Substantive Implications of the Hypothesis
Theory of the Consumption Function
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