Question

One model in economics is the permanent income hypothesis, which basically states that a household's expenditures will not react to a change in income unless that change in income is viewed as being permanent. How would you use this model to predict the expenditure patterns over the course of a year of a real estate agent who only sells homes during the months of April through July?

Answer 1

The permanent income hypothesis is a theory of consumer spending stating that people will spend money at a level consistent with their expected long-term average income. The level of expected long-term income then becomes thought of as the level of “permanent” income that can be safely spent.

If a real estate agent sells home only during the months of April through July ,then he will allocate his income in such a way so that he can spend same amount of money for the entire year . He won't spend all the income from april to july because he knows the income received by him is not permanent.