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Milton Friedman (/ ˈ f r iː d m ən / ⓘ; July 31, 1912 – November 16, 2006) was an American economist and statistician who received the 1976 Nobel Memorial Prize in Economic Sciences for his research on consumption analysis, monetary history and theory and the complexity of stabilization policy. [4]
The American economist Milton Friedman developed the permanent income hypothesis in his 1957 book A Theory of the Consumption Function. [7] In his book, Friedman posits a theory that explained how and why future expectations change consumption. [8] Friedman's 1957 book A Theory of the Consumption Function created the basis for consumption ...
In economics, the consumption function describes a relationship between consumption and disposable income. [ 1 ] [ 2 ] The concept is believed to have been introduced into macroeconomics by John Maynard Keynes in 1936, who used it to develop the notion of a government spending multiplier .
Friedman was also known for his work on the consumption function, the Permanent Income Hypothesis (1957), which Friedman referred to as his best scientific work. [127] This work contended that rational consumers would spend a proportional amount of what they perceived to be their permanent income. Windfall gains would mostly be saved.
The Keynesian consumption function is also known as the absolute income hypothesis, as it only bases consumption on current income and ignores potential future income (or lack of). Criticism of this assumption led to the development of Milton Friedman's permanent income hypothesis and Franco Modigliani's life cycle hypothesis.
First edition (publ. University of Chicago Press) Milton Friedman's book Essays in Positive Economics (1953) is a collection of earlier articles by the author with as its lead an original essay "The Methodology of Positive Economics."
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Friedman's updated quantity theory also allowed for the possibility of using monetary or fiscal policy to remedy a major downturn. [91] Friedman broke with Keynes by arguing that money demand is relatively stable—even during a downturn. [90] Monetarists argued that "fine-tuning" through fiscal and monetary policy is counterproductive.