A Stochastic Analysis of the Effect of Sudden Increase in the Income of Individuals on the Economy

In this study, we investigate the effect of sudden increase in the income of individuals on the economy. Such situation arises in countries where upward adjustment of salaries increases the income of individuals by a certain percentage. We show that accumulated wealth of individuals through capital investment follows the power law distribution. We quantify the effect of low and high propensity, respectively, of an individual to invest on the economy using an empirical illustration.