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.

Macro vs Micro

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