Lecture 12 Request for Micro-foundation A Behavior Analysis (宏观经济学(南开大学,龚刚).pptVIP

Macroeconomics Lecture 12 Micro-foundation and the Behavior Analysis on Consumption I. Introduction The Critique to Keynesian Economics The lacking in micro-foundation; Unable to explain growth; Unable to explain and deal with stagflation. I. Introduction The objective of this lecture is to dealing with the first critique—the lacking of micro-foundation by introducing some models of behavior analysis on the consumption derived from optimization. The bounded rationality, which may regarded to be a model of output determination in New Keynesian analysis. II. Irving Fisher’s Inter-temporal Choice of Consumption The Inter-temporal Budget Constraint Suppose a consumer’s life can be divided into 2 periods, and therefore we denote Y1: income in period 1; Y2: income in period 2; C1: consumption in period 1; C2: consumption in period 2. II. Irving Fisher’s Inter-temporal Choice of Consumption The Inter-temporal Budget Constraint (continued) Since the consumer should be died in period 2, saving should come only from period 1: S = Y1 - C1 (A) II. Irving Fisher’s Inter-temporal Choice of Consumption The Inter-temporal Budget Constraint (continued) This indicates that C2 = (1+r)S+Y2 (B) where r is the interest rate. Note that here S can also be regarded as borrowing (dis-saving). II. Irving Fisher’s Inter-temporal Choice of Consumption The Inter-temporal Budget Constraint (continued) Express S in (B) in terms of (A), we obtain C2 = (1+r)(Y1 - C1) + Y2 or C1+C2/(1+r) = Y1 + Y2/(1+r) This budget constraint can be graphed as in the figure of the next page. II. Irving Fisher’s Inter-temporal Choice of Consumption The Inter-temporal Budget Constraint (continued) II. Irving Fisher’s Inter-temporal Choice of Consumption The Inter-temporal Budget Constraint (continued) Important remark: Here it is assumed that the futu