中级宏观经济学第十六章.ppt

16-1 Consumption The theory of consumption was developed by Milton Friedman in the 1950s, who called it the permanent income theory of consumption, and by Franco Modigliani, who called it the life cycle theory of consumption. 16-1 Consumption 16-1 Consumption Building on what you saw in Chapter 14, let’s compute the present value of your labor income as the value of real expected after-tax labor income, discounted using real interest rates. Your wealth today, the expected value of your lifetime after-tax labor income, is around $2 million. 16-1 Consumption The constant level of consumption that a consumer can afford equals his total wealth divided by his expected remaining life. Consumption depends not only on total wealth but also on current income. 16-1 Consumption In words: Consumption is an increasing function of total wealth, and also an increasing function after-tax labor income. Total wealth is the sum of nonhuman wealth – financial wealth plus housing wealth – and human wealth – the present value of expected after-tax income. 16-1 Consumption Expectations affect consumption in two ways: Directly through human wealth, or expectations of future labor income, real interest rates, and taxes. Indirectly through nonhuman wealth - stocks, bonds, and housing. Expectations of the value of nonhuman wealth is computed by financial markets. 16-1 Consumption This dependence of consumption on expectations has two main implications for the relation between consumption and income: Consumption is likely to respond less than one for one to fluctuations in current income. Consumption may move even if current income does not change. Consumption may move even if current income does not due to changes in consumer confidence. 16-2 Investment Investment decisions depend on current sales, the current real interest rate, and on expectations of the future. The decision to buy a machine depends on the present value of the profits the firm can expect from having t