Explore BrainMass

Intertemporal Macroeconomics

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

Discuss with reference to empirical evidence why changes in consumption should be unpredictable.

© BrainMass Inc. brainmass.com October 25, 2018, 7:34 am ad1c9bdddf

Solution Preview

This is a great topic. Remember, I cannot answer the question directly. What I shall do is lay out the basic theoretical elements of Hall's (1976) thesis on consumption unpredictability. I'll also include a few scholarly sources for you to read and cite. Keep in mind too that this literature is not easy. But I will try to make it as simple as possible.

The basics--We assume that consumers are totally rational. For the model's sake, that works. It does NOT work in reality.
In a totally rational consumer universe, there will be predictable patterns of consumption so long as incomes themselves remain basically stable over time.

YET - there is no reason to believe that incomes will remain stable, especially over a lifetime.

Why is this important?

This is significant for several reasons. The simple one is that people have all kinds of surprise in their lives --- windfalls, disasters, health problems, etc. that cannot really be predicted. Of course, this changes their consumption habits.
This implies that consumption in this case cannot be predicted, since consumption is based on far more things than just income and "consumer rationality".

But this is just the beginning.

There is another reason too - what of the government or economic fluctuations? Governments can raise taxes; they can increase mandates; they can pile on new regulations; they can make bankruptcy harder to declare. . . .But why stop there? What about speculation on the dollar? Is it possible that global markets can ...

Solution Summary

The expert discusses why changes in consumption should be unpredictable with reference to empirical evidence.

See Also This Related BrainMass Solution

Take a position on environmental topics...

Would like info/references on this one a little more insight.

It is argued that many environmental regulations are too costly. Do the economic effects of environmental public policy outweigh the costs?
Some policies have little or no direct monetary costs. These policies remove subsidies to special interests and restrict or deny access to national resources. Many environmental policies involve some very real costs that must be paid by some segment of society. In general, states with the strictest environmental regulations also had the highest rates of job growth and economic performance. Nations with the highest environmental standards also had the most robust economies and rates of job creation. Only 0.1% of job layoffs were attributed to employers to environment-related causes. In summary, we can draw several conclusions from our examination of the impact of environmental policy on the economy. Environmental public policy does not diminish the wealth of a nation; rather, it transfers wealth from polluters to pollution controllers and to less polluting companies. The environmental protection industry is a major job-creating, profit-making, sales-generating industry. The argument that environmental protection is bad for the economy is unsound. Not only is it good for the economy but environmental public policy is responsible for a less hazardous, healthier, and more enjoyable environment. While this is certainly one view of environmental public policy, there are certainly rebuttals to this position, also based on notions of sound science and economic evidence.

1. take a position on public policy, global sustainability, and global economics. Be able to support your position with evidence.

View Full Posting Details