Changes in Consumption Should be Unpredictable. Discuss

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 Read more about Changes in Consumption Should be Unpredictable. Discuss[…]