Macro vs Micro

Imagine an economy in which three people interact: C, D, E, with consumption plans {c_i} {d_i} {e_i}.

The consumption plans are set according to soft constraints, represented by the blue boxes. Expected future income, expected future interest rates, etc. They are ex-ante constraints, conditional on known information and subject to being updated as new information comes out. They are also micro and inter-temporal in nature.

But the actual constraints are vertical — they are the hard constraints that apply at each point in time. They are macro in nature. Nothing in the economy enforces no ponzi conditions. No one prevents a person from accumulating more and more wealth for its own sake.  Nothing prevents everyone from rushing to save at the same time, or rushing to spend at the same time.

The horizontal constraints are better categorized as wishes, or prescriptions for decorous behavior, as judged by the model author.

Advertisements
Macro vs Micro

2 thoughts on “Macro vs Micro

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s