Below are the key terms featured in this chapter. Clicking on a term will reveal its definition. The textbook's full glossary is also available for online searching.
| Barro-Ricardo equivalence proposition (Ricardian equivalence) | Debt financing by bond issue merely postpones taxation and therefore, in many instances, is strictly equivalent to current taxation.
(See See page 304)
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| Buffer stock | Excess consumer savings used to maintain consumption when income is lower than usual (saving for a rainy day).
(See See page 302)
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| Excess sensitivity | Consumption responds too strongly to predictable changes in income.
(See See page 301)
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| Excess smoothness | Consumption responds too little to surprise changes in income.
(See See page 301)
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| Life-cycle hypothesis | Emphasizes choices about how to maintain a stable standard of living in the face of changes in income over the course of life.
(See See page 296)
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| Lifetime budget constraint | The sum of period-by-period consumption.
(See See page 299)
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| Lifetime utility | The sum of period-by-period utilities.
(See See page 299)
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| Liquidity constraints | Exist when a consumer cannot borrow to sustain current consumption in the expectation of higher future income.
(See See page 301)
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| Marginal utility of consumption | The increase in utility from a small increase in consumption.
(See See page 300)
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| Myopia | The idea that consumers are not as forward-thinking as the LC-PIH suggests.
(See See page 301)
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| Operational bequest motive | Parents' desire to leave a bequest to their children.
(See See page 305)
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| Permanent income | The steady rate of consumption a person could maintain for the rest of his or her life, given the present level of wealth and the income earned now and in the future.
(See See page 298)
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| Permanent-income theory | Says that people form expectations of their future income and choose how much to consume based on those as well as their current income.
(See See page 296)
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| Random-walk model of consumption | Consumption tomorrow should equal consumption today plus a truly random error.
(See See page 300)
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2002 McGraw-Hill Higher Education