The absolute income hypothesis states that the demand of private households for consumer goods depends on the current income of the households. This creates a close connection between current income and current consumption. Keynesian models see in this context an important reason for the intensification of economic fluctuations. If unemployment rises while wages rise only weakly, income dynamics are consequently also weak.
The absolute income hypothesis now states that in this case the consumption dynamics also come to a standstill. The consequence of this is, in turn, rising unemployment. This gradually creates a downward spiral. Conversely, an upward spiral forms when unemployment falls and wages rise. In this case, consumption picks up again. Growth and employment are increasing significantly.