Consumption,C Long-run consumption function (constant APC) Short-run consumption function (falling APC) Income,Y The Consumption Puzzle
The Consumption Puzzle
Studies of household data and short time-series found a relationship between consumption and income similar to the one Keynes conjectured. In the figure,this relationship is called the short-run consumption function. But studies of long time-series found that the average propensity to consume did not vary systematically with income
Studies of household data and short time-series found a relationship between consumption and income similar to the one Keynes conjectured. In the figure, this relationship is called the short-run consumption function. But studies of long time-series found that the average propensity to consume did not vary systematically with income
This relationship is called the long-run consumption function. Notice that the short-run consumption function has a falling average propensity to consume,whereas the long-run consumption function has a constant average propensity to consume
This relationship is called the long-run consumption function. Notice that the short-run consumption function has a falling average propensity to consume, whereas the long-run consumption function has a constant average propensity to consume
flgure 16-3 Second-period consumption,C2 B Consumers (1+r)Y+Y2 budget constraint Saving Borrowing YY,+Y2八1+） The Consumer's Budget Constraint First-period consumption,C
The Consumer’s Budget Constraint