# Behavior of Prices on Wall Street by Arthur A. Merrill

By Arthur A. Merrill

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It is not difficult to see that these results are what one would expect if our model is correct. 2, the relative frequency of households in a given income bracket whose income is below or above their accustomed level, depends, not on the absolute level of income, but, rather, on the position of the income bracket relative to the average income. For example, in a given income bracket, say \$10,000, we should expect to find a large proportion of people whose accustomed level is less than \$10,000 if, say, the average income is \$2,000 and the level \$10,000 is in the top decile; while, in this same bracket, we should expect to find a small proportion of people whose accustomed level is below \$10,000 if the community average income were, say, \$50,000 so that the \$10,000 bracket is in the lowest income decile.

Modigliani and Brumberg, op. cit. 10. The assumption ¯aL+1 = 0 might be stated more elegantly in terms of the following two: ( a) ∂U ∫ 0; ( b) aL+1 м 0. ∂ aL+1 The first of these equations specifies certain properties of the utility function U; the second states an institutional fact the individual must take into account in his planning, namely that our economic, legal, and ethical system is set up so as to make it rather difficult to get away without paying one’s debts. The addition of these two equations to our previous system implies a¯ L+1 = 0.

Meanwhile, Reid’s method is very similar to the comparison we have just proposed. The discussion that has led us to the formulation of our crucial experiment suggests that the correlation between current and previous income can be taken 26 The Life-Cycle Hypothesis as an indirect, approximate measure of the degree to which the current income of each household is close to the level to which the household is adjusted (or to a constant multiple of this level—see previous paragraph). In the first place, this correlation is a very good direct measure of strictly short-term fluctuations which, as we have seen, control the relation between ¯y e(y) and y.