This idea was used by Per Krusell and Anthony Smith to critique Thomas Piketty's "second law of capitalism." John Campbell and Gregory Mankiw estimated that about fifty percent of consumers display the behavior predicted by idea. Robert Hall showed that for quadratic utility, if one assumes that this statement is true, then consumption must follow a random walk. This statement was first proposed to explain Simon Kuznets' data showing no change in the savings rate since 1899 even as the savings rates across earnings percentiles differed. This idea is usually paired with Franco Modigliani's life-cycle hypothesis, and it was developed as a critique of John Maynard Keynes' concept of a consumption function. For 10 points, name this hypothesis which states that individuals smooth their consumption so that it is a constant fraction of lifetime earnings, which was proposed by Milton Friedman.
This idea was used by Per Krusell and Anthony Smith to critique Thomas Piketty's "second law of capitalism." John Campbell and Gregory Mankiw estimated that about fifty percent of consumers display the behavior predicted by idea. Robert Hall showed that for quadratic utility, if one assumes that this statement is true, then consumption must follow a random walk. This statement was first proposed to explain Simon Kuznets' data showing no change in the savings rate since 1899 even as the savings rates across earnings percentiles differed. This idea is usually paired with Franco Modigliani's life-cycle hypothesis, and it was developed as a critique of John Maynard Keynes' concept of a consumption function. For 10 points, name this hypothesis which states that individuals smooth their consumption so that it is a constant fraction of lifetime earnings, which was proposed by Milton Friedman.
This idea was used by Per Krusell and Anthony Smith to critique Thomas Piketty's "second law of capitalism."
life-cycle / permanent income hypothesis