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Permanent Income Hypothesis Explained: Friedman’s Theory of Consumption Introduction Imagine two friends. One gets a surprise USD 5,000 bonus at work. The other gets a USD 5,000 permanent raise added to their yearly salary. Both received the same amount of extra money — so why does the first friend spend
Functional Forms of Regression Models The Semi-Log Model in Econometrics In the previous article, we examined the Double-Log Model, where both the dependent and independent variables are expressed in logarithmic form, allowing coefficients to be interpreted as elasticities. However, not all economic relationships exhibit constant elasticity, making other functional forms
Various Functional Forms of Regression Models Double-Log Model Explained with Examples Introduction Regression analysis is one of the most powerful tools in econometrics, but a model is only as good as its functional form. Choosing the wrong functional form does not just produce a slightly different result — it can
Relative Income Hypothesis How Social Comparison Shapes Consumption Why do two families earning the exact same income spend such different amounts on consumption? Why does a household that loses part of its income during a recession still find it so hard to cut back on spending? These questions puzzled economists
Saving Function Definition The saving function shows the functional relationship between saving and disposable income. It tells us how much a household wants to save at a given income level. Thus, S = f(Y). Equation Where C₀ = autonomous consumption, c = MPC or Where S₀ = −C₀ (autonomous saving/dissaving)
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