How can the facts be reconciled

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Reference no: EM132126466

Question: According to the PIH, the ratio of permanent consumption to permanent income is uncorrelated with the level of income. Thus someone earning $5,000,000 per year would save the same percentage of their income as someone earning $50,000 per year. Yet we find that for any given year, the saving rate has a strong positive correlation with the level of income. How can these facts be reconciled?

Reference no: EM132126466

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