Why the Income Distribution Matters for Macroeconomics | House of Debt
A central argument we have made on this blog and in our book is
that the distribution of income/wealth matters a great deal for
thinking about the macro-economy. Convincing some of this fact is not
easy — many continue to work within a modeling framework in which all
distributional considerations are assumed away, the so-called
“representative-agent” framework.
Perhaps the easiest way to see the importance of the income
distribution is to examine how households respond to a windfall of cash
or wealth. Do they spend the money, or do they save it? And does the
spending response to a windfall of cash depend on the income of the
household?
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