Wonderful video Thank you so much sir 🙏😊 Sir single doubt here please solve it To find out the MPC out of transitory income {in the (b) part of example} why you take 60000- 50000 in place of ∆Y rather than temporary higher income for one year is 100000 and for 19 years 50000 is given?
What Is the point of a theory like this? Can peoples’ behaviours not be surveyed in real life and used to estimate behaviour, instead of an ideal theory/model. I just find it hard to believe the average person follows this exact model and that it would be of any practicality in evaluating/predicting the real world
I agree that the average person is not going to follow the model and have completely smooth consumption. The model does shed light on some empirical findings. In the early part of life, consumption exceeds income for some people (borrowing to purchase a home, car, etc., while labor market earnings are relatively low). In the middle years, the peak earnings years, income exceeds consumption and saving grows. In retirement, consumption exceeds income. Consumption is a lot smoother than the income changes through life, which is consistent with the premise of this model. Another important factor is the effectiveness of fiscal policy to stimulate consumption spending. If consumption is not very sensitive to temporary tax cuts or government stimulus checks because people's consumption decisions are largely affected by permanent lifetime earnings, these policies will not have their desired effect.
@@EconomicsinManyLessons Thank you for the response. I agree with everything you said (I'm also assuming you just know more than me in general), but I just wonder why economists feel the need to create exact models in the first place. I'm sure this model works to a large degree, but it feels overly simplistic and mathematical for a social science. I'm an economics student myself and I have observed a little bit through books I've read etc that economics loves mathematical theories and formulas when I wonder in some situations if behavioural psychology would be of more insight. I'm just cautious of using exact models that that provide general insight, as it is bound to be misused/misinterpreted imo. Once again I really appreceate you having taken the time to respond.
Yes, the model is simplistic. But such kind of deterministic models are important as they become the foundation for stochastic models which give more satisfactory answers. This model is also based on empirical findings of that time
If the person is 20 and she expects to live 70 years should the remaining years not be 50 years.
Please explain to me
Thank you
Love your videos..
Please make a video on Keynesian theory of investment
Wonderful video
Thank you so much sir 🙏😊
Sir single doubt here please solve it
To find out the MPC out of transitory income {in the (b) part of example} why you take 60000- 50000 in place of ∆Y rather than temporary higher income for one year is 100000 and for 19 years 50000 is given?
Yes sir, please clear this doubt.
Thanks sir
What Is the point of a theory like this? Can peoples’ behaviours not be surveyed in real life and used to estimate behaviour, instead of an ideal theory/model. I just find it hard to believe the average person follows this exact model and that it would be of any practicality in evaluating/predicting the real world
I agree that the average person is not going to follow the model and have completely smooth consumption. The model does shed light on some empirical findings. In the early part of life, consumption exceeds income for some people (borrowing to purchase a home, car, etc., while labor market earnings are relatively low). In the middle years, the peak earnings years, income exceeds consumption and saving grows. In retirement, consumption exceeds income. Consumption is a lot smoother than the income changes through life, which is consistent with the premise of this model.
Another important factor is the effectiveness of fiscal policy to stimulate consumption spending. If consumption is not very sensitive to temporary tax cuts or government stimulus checks because people's consumption decisions are largely affected by permanent lifetime earnings, these policies will not have their desired effect.
@@EconomicsinManyLessons Thank you for the response. I agree with everything you said (I'm also assuming you just know more than me in general), but I just wonder why economists feel the need to create exact models in the first place. I'm sure this model works to a large degree, but it feels overly simplistic and mathematical for a social science. I'm an economics student myself and I have observed a little bit through books I've read etc that economics loves mathematical theories and formulas when I wonder in some situations if behavioural psychology would be of more insight. I'm just cautious of using exact models that that provide general insight, as it is bound to be misused/misinterpreted imo. Once again I really appreceate you having taken the time to respond.
Yes, the model is simplistic. But such kind of deterministic models are important as they become the foundation for stochastic models which give more satisfactory answers. This model is also based on empirical findings of that time
What is the criticism of consumption