5. The Keynesian Consumption Function As income rises, the APC falls (consumers save a bigger fraction of their income). C Y slope = APC
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8. The Consumption Puzzle C Y Consumption function from long time series data (constant APC ) Consumption function from cross-sectional household data (falling APC )
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19. Temporary v. permanent Temporary rise in income: Y 1 alone Permanent rise in income: Y 1 and Y 2 equally S’ Y 2 Save part of income: So ________________. C moves with Y: So _________________. C 2 = C’ 1 C’ 2 C’ 2 = =‘C 1 =C 1 C 2 = =C 1 Y 1 Y 2 Y 1 Y’ 1 Y’ 2 Y’ 1
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Notes de l'éditeur
This long chapter is a survey of the most prominent work on consumption since Keynes. After reviewing the Keynesian consumption function and its implications, the chapter presents Irving Fisher’s theory of intertemporal choice, the basis for much subsequent work on consumption. The chapter presents the Life-Cycle and Permanent Income Hypotheses, then discusses Hall’s Random Walk Hypothesis. Finally, there is a brief discussion of some very recent work by Laibson and others on psychology and economics, in particular how the pull of instant gratification can cause consumers to deviate from perfect rationality.
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