The Life Cycle Model of Consumption and Saving

This chapter continues to explore the concept of permanent income, but in the setting of a household economy that lives for many decades -- what is called the life cycle model of consumption and saving. It follows the normal life cycle of most individuals, who start with little income, gain experience and salary over time, and go into full retirement at the end of life, dividing life into three distinct blocks and averaging out the level of consumption and permanent income. This is also called the permanent income hypothesis. There is also a discussion of age demographics of a nation, wealth distribution, transfers from parents to children, voluntary and involuntary bequests, annuities, and why nations save.

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