ECON 2000 Chapter Notes - Chapter 16 : Permanent Income Hypothesis, Franco Modigliani, Consumption Smoothing
10 Dec 2016
School
Department
Course
Professor
Document Summary
16. 1 the macroeconomic implications of microeconomic decision making: intertemporal choice. Economics assume households and firms are acting rationally to meet their objectives. (assuming that the objective of households is to maximize utility or maximize profits) Such that they consider the future when making decision today. Expectations about future for investment decisions are important because if a person thought that demand for cards was going to decrease in the future, they would be less likely to build a factory today. (thus, affecting investment) Expenditure on durable goods almost always decreases during recessions, while expenditure on services decreases little or even increases. Consumption smoothing is a tendency of households to consume an equal amount over time. It happens because of decreasing marginal utility of consumption. Benefit one person obtains from another unit of consumption. When households allocate consumption over time they tend to choose a roughly constant level of. 16. 2. 3 the intertemporal budget constraint consumption over time.
