Explain the term random walk in consumption. Under what conditions will consumption follow such a behavior? Aggregate consumption varies less than GDP and aggregate investment varies more. Can you reconcile these observations with assumption that consumption and investment decisions are taken by rational forward-looking agents? How do changes in r affect expected consumption growth? Interpret the effect of r on expected consumption in the light of precautionary saving.
Explain the term random walk in consumption. Under what conditions will consumption follow such a behavior? Aggregate consumption varies less than GDP and aggregate investment varies more. Can you reconcile these observations with assumption that consumption and investment decisions are taken by rational forward-looking agents? How do changes in r affect expected consumption growth? Interpret the effect of r on expected consumption in the light of precautionary saving.
Chapter18: The Keynesian Model
Section: Chapter Questions
Problem 6SQ
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Explain the term random walk in consumption. Under what conditions will consumption follow such a behavior?
Aggregate consumption varies less than
How do changes in r affect expected consumption growth? Interpret the effect of r on expected consumption in the light of precautionary saving.
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