Consumption - Stanford University

Chapter 20 ConsumptionCharles I. Jones, Stanford GSBP reliminary, Comments WelcomeLearning Objectives:In this chapter, we study the neoclassical Consumption model , in which individualschoose the time path of theirconsumption to maximize utility. how this standard model leads to a benchmark solution in which Consumption is propor-tional to an individual s total wealth, including current financial wealth and the presentvalue of current and future labor income. the heterogeneity in consumer behavior at the micro level;some individuals, often therich, tend to follow the permanent income hypothesis, whileothers, often the poor, haveconsumption that is quite sensitive to current income. additional facts about Consumption in the aggregate, including the decline in the personalsaving rate and the rise in the debt-income ratio in recent Jones Consumption , November 25, 20092 Consumption is the sole end and purpose of all Adam Smith1.

Nov 25, 2009 · The neoclassical model we explore in this chapter is a fundamental building block of mod-ern macroeconomics. It is to consumption what the Solow model is to the study of economic growth. This workhorse model allows us to develop a better, more intuitive understanding of the microfoundations of consumption that were summarized earlier in …

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