CHAPTER 20INCOME INEQUALITY AND POVERTY445Florida frost drives up the price of oranges, and California orange growers seetheir incomes temporarily rise. The next year the reverse might happen.Just as people can borrow and lend to smooth out life cycle variation in in-come, they can also borrow and lend to smooth out transitory variation in income.When California orange growers experience a good year, they would be foolish tospend all of their additional income. Instead, they save some of it, knowing thattheir good fortune is unlikely to persist. Similarly, the Florida orange growers re-spond to their temporarily low incomes by drawing down their savings or by bor-rowing. To the extent that a family saves and borrows to buffer itself fromtransitory changes in income, these changes do not affect its standard of living. Afamily’s ability to buy goods and services depends largely on its permanent in-come,which is its normal, or average, income.
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poverty line, Census Bureau, permanent income