0 Ch12-1 Consumption and Investment Economics ECONOMICS MANAGEMENT SCHOOL,TONGJI UNIVERSITY
Economics ECONOMICS & MANAGEMENT SCHOOL, TONGJI UNIVERSITY Ch12-1 Consumption and Investment
1907 14-2 3树 Topics to be Discussed The Consumption Theory ·Investment Economics ECONOMICS MANAGEMENT SCHOOL,TONGJI UNIVERSITY
Economics ECONOMICS & MANAGEMENT SCHOOL, TONGJI UNIVERSITY 14-2 Topics to be Discussed • The Consumption Theory • Investment
14-3 0 12.1 The Consumption Theory This chapter surveys the most prominent work on consumption: John Maynard Keynes:consumption and current income Irving Fisher and Intertemporal Choice Franco Modigliani:the Life-Cycle Hypothesis Milton Friedman:the Permanent Income Hypothesis Economics ECONOMICS MANAGEMENT SCHOOL,TONGJI UNIVERSITY
Economics ECONOMICS & MANAGEMENT SCHOOL, TONGJI UNIVERSITY 14-3 12.1 The Consumption Theory This chapter surveys the most prominent work on consumption: John Maynard Keynes: consumption and current income Irving Fisher and Intertemporal Choice Franco Modigliani: the Life-Cycle Hypothesis Milton Friedman: the Permanent Income Hypothesis
190 14-4 12.1.1 Keynes's Conjectures 1.0<MPC<1 2.APC falls as income rises where APC average propensity to consume C/Y 3.Income is the main determinant of consumption. Economics ECONOMICS MANAGEMENT SCHOOL,TONGJI UNIVERSITY
Economics ECONOMICS & MANAGEMENT SCHOOL, TONGJI UNIVERSITY 14-4 12.1.1 Keynes’s Conjectures 1. 0 < MPC < 1 2. APC falls as income rises where APC = average propensity to consume = C/Y 3. Income is the main determinant of consumption
14-5 Problems for the Keynesian Consumption Function Based on the Keynesian consumption function, economists predicted that c would grow more slowly than r over time. This prediction did not come true: As incomes grew,the APC did not fall, and C grew just as fast. Simon Kuznets showed that C/Y was very stable in long time series data. Economics ECONOMICS MANAGEMENT SCHOOL,TONGJI UNIVERSITY
Economics ECONOMICS & MANAGEMENT SCHOOL, TONGJI UNIVERSITY 14-5 Problems for the Keynesian Consumption Function Based on the Keynesian consumption function, economists predicted that C would grow more slowly than Y over time. This prediction did not come true: As incomes grew, the APC did not fall, and C grew just as fast. Simon Kuznets showed that C/Y was very stable in long time series data