Consumption, Saving, and the Intertemporal Budget Constraint

This chapter focuses on saving and investment, which are the main drivers of capital accumulation. By building up the stock of capital, the economy becomes more productive in the future. Consumption is driven by households’ budgets, and consumption and savings choices exist in an intertemporal framework, concerning the present and the future. Professor Sachs also discusses consumption smoothing, dissaving, permanent income, household expenditure and the management of a family economy, and uses graphs to explain current vs future income. He also explains disposable income, the consumption possibility line, intertemporal budget constraints, permanent disposable income and covers the permanent income consumption theory.

This video is licensed under the CC BY-NC-SA license.