The classical consumption models (Modigliani’s Life-Cycle hypothesis and Friedman’s Permanent Income hypothesis) tell us that consumption is dependent on life-time income. This is based on the assumptions of credit market access (so we don’t have liquidity constrained individuals) and certainty. In short this means that consumption will only change if income changes, and a temporary income change will cause consumption to rise by less (i.e. MPC is low) than a permanent income change (i.e. MPC is close to 1).
Due to the theory of consumption smoothing – whereby individuals prefer to have similar incomes over two periods (or a lifetime) than extremities in either period – we would expect change in consumption to be low over a lifetime. [...]
The advent of the neoclassical approach to establish economics as a science, led to the disappearance of many psychological insights already made by economists, for example Smith says “we suffer more… when we fall from a better to a worse situation, than we ever enjoy when we rise from a worse to a better.” And Edgeworth points out that one agent’s utility can be affected by another agent’s payoff. One development of neoclassical economics was the formulation of the expected utility framework which makes precise assumptions that can be falsified, it assumes stable and consistent preferences, the ability to perform complex computations, and an ability to memorise a large amount of information. [...]
Labour matching models stem from the fact that when a worker becomes unemployed, he needs to look for a job and such a process is not instantaneous. He cannot simply occupy any vacancy, but has to search for a job in a certain area, in a certain profession and which matches a list of criteria such as wage, hours of work and subjective factors like “would I enjoy working here”. This all takes time and requires effort. Before such matching models were devised, economists assumed in their models that unemployment could instead be modelled by looking at the number of unemployed and the number of vacancies and then working out how many of the unemployed could take these vacancies. [...]
The credit channel is an enhancement mechanism for traditional monetary policy transmission, not a truly independent or parallel channel. Discuss
The traditional monetary policy transmission works through a number of conventional channels: interest rate effect, exchange rate effect, asset price effect and through expectations.People used to go to the website and takes the advantage of low interest rates. The stance of monetary policy acts as a signal to firms and individuals about what the central bank thinks the future state of the economy will look like, and thus affects investment and spending decisions by agents now based on this. A higher interest rate could imply that the central bank thinks the economy is doing well, which may induce firms and consumers to spend more, because of this signal. [...]
Literally, social ontology is the study of social nature and it concerns itself with “how existents exist”1. It is the study of the social realm which includes the “domain of all phenomena, existents, properties”2 whose existence depends upon humans and their interactions. To paraphrase Little “almost all human action is social: socially oriented, socially embedded or socially constructed”6. So how can it be useful for illuminating the study of economics? If economics is the study of people, and how they interact to form markets, bargain with each other, and more generally interact economically, then we need to examine an economist’s worldview on how these interactions are governed. [...]