宏观经济学教学课件Chapter-13

1、1Chapter13Consumption and SavingItem ItemItemEtc.McGraw-Hill/IrwinMacroeconomics, 10e 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.2IntroductionConsumption accounts for about 70% of ADFluctuations in C are proportionately smaller than the fluctuations in GDPConsumption is relatively sta

2、bleIn this chapter we seek to understand consumption and the link between consumption and income Consumption theoryThe debate over different consumption theories = debate over the size of the marginal propensity to consume (MPC)Keynesian model MPC is high, modern theories MPC is low3IntroductionFigu

3、re 13-2 plots changes in per capita consumption and changes in per capita disposable incomeConsumption follows income swings that last 5-10 yearsConsumption does not respond to spikes in incomeInsert Figure 13-1 hereLong term changes in incomegenerate changes in consumption, but short term changes i

4、n incomedo not.4IntroductionFigure 13-2 compares consumption this quarter to the previous quarter: Consumption is almost perfectly predicted by previous consumptionThis relationship is an outcome of the link between current consumption and expected future consumptionUsed in the modern theories of co

5、nsumptionInsert Figure 13-2 here5IntroductionEarly Keynesian theories explained consumption as a function of current disposable income (Figure 13-3)No separation for temporary and permanent incomeThis consumption function is of the form: (1), where c is the MPC and is on the 0,1 range Modern consump

6、tion theories incorporate intertemporal dynamicsInsert Figure 13-3 here6Life Cycle TheoryThe life cycle hypothesis views individuals as planning their consumption and savings behavior over long periods with the intention of allocating their consumption in the best possible way over their entire life

7、timesDifferent MPC out of permanent income, transitory income, and wealth compared to the Keynesian theory with a single MPCKey assumption: most people choose stable lifestyles, or smooth out consumption over their lifetimeIndividuals do not like consumption to change dramatically from year to yearT

8、he simplest form of this assumption is to consume the same amount in every year7Life Cycle TheorySuppose an individual: Starts life at age 20Plans to work until age 65Will die at age 80Has annual labor income of YL = $30,000Lifetime resources are $30,000 x 45 = $1,350,000Spreading lifetime resources

9、 over the number of years of life (80-20 = 60) allows for C = $1,350,000/60 = $22,500The general formula isThe marginal propensity to consume is 8Life Cycle TheoryOnce we have a theory of consumption, we have a theory of savings (savings is income less consumption)Figure 13-4 traces out the path of

10、consumption and saving using the life cycle theoryWealth peaks at retirementWealth is zero at deathAccumulate savings in working years, but dissave through retirementIncome is positive in working years, and zero in retirementInsert Figure 13-4 here9Life Cycle TheoryContinuing with the example, can c

11、ompute different marginal propensities to consume for various measures of income: permanent and transitory incomeSuppose income increases permanently by $3,000:The extra $3,000 for each 45 years spread out over 60 years of life increases consumption byThe marginal propensity to consume out of perman

12、ent income isSuppose income increased by $3,000 for only one year:The extra $3,000 over 60 years would increase consumption byThe MPC out of transitory income is 10Life Cycle TheoryThe MPC out of permanent income is large The MPC out of transitory income is small and fairly close to zeroThe life-cyc

13、le theory implies that the MPC out of wealth should equal the MPC out of transitory incomeWHY?Spending out of wealth is spread out over remaining years of lifeThe MPC out of wealth is used to link changes in the value of assets to current consumption11Permanent Income TheoryPermanent income theory o

14、f consumption is like the life cycle hypothesis in that current consumption is not dependent upon current income, but on a longer-term estimate of incomeMilton Friedman called this permanent incomePermanent income is the steady rate of expenditure a person could maintain for the rest of his/her life

15、, given the present level of wealth and the income earned now and in the futureThe consumption function is then: (2), where YP is permanent disposable income Life cycle hypothesis and permanent income hypothesis are verysimilar, and are often combined as the PILCH.12Consumption Under UncertaintyIf p

16、ermanent income were known, according the PILCH, consumption would never changeThe modern version of PILCH emphasizes the link between income uncertainty and changes in consumption and takes a more formal approach to consumer maximization Under this newer version of consumption theory, changes in co

17、nsumption arise from surprise changes in incomeAbsent such surprises, consumption this period is the same as last period and is the same as next periodConsumption can be modeled as: , where consumption tomorrow is equal to consumption today plus a truly random error (Robert Hall)13Liquidity Constrai

18、nts and MyopiaWhy might the PILCH miss explaining close to half of consumption behavior? Two explanations include:Liquidity constraints: consumer unable to borrow to sustain current consumption in the expectation of higher future incomeWhen permanent income is higher than current income, consumers a

19、re unable to borrow to consume at the higher level predicted by PILCHConsumption more closely linked to current incomeMyopia:Consumers simply are not as forward looking as the PILCH suggestsDifficult to differentiate between the two, but both imply current consumptiondependent upon current disposable income, rather than future levels.14Uncertainty and Buffer Stock SavingLife cycle hypothe