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In economics, the life-cycle hypothesis ... "Franco Modigliani and the Life Cycle Theory of Consumption". Banca Nazionale del Lavoro Quarterly Review. 58 ...
Modigliani, beginning in the 1950s, was an originator [9] of the life-cycle hypothesis, which attempts to explain the level of saving in the economy. [10] The hypothesis that consumers aim for a stable level of consumption throughout their lifetime (for example by saving during their working years and then spending during their retirement ).
See Intertemporal choice § Modigliani's life cycle income hypothesis for details. The life-cycle model of consumption suggests that consumption is based on average lifetime income instead of income at any given age. First, young people borrow to consume more than their income, next, as their income rises through the years, their consumption ...
Other economists built on the IS/LM framework. Notably, in 1944, Franco Modigliani [b] added a labor market. Modigliani's model represented the economy as a system with general equilibrium across the interconnected markets for labor, finance, and goods, [47] and it explained unemployment with rigid nominal wages. [53]
The life-cycle hypothesis was published by Franco Modigliani in 1966. It describes how people make consumption decisions based on their past income, current income, and future income as they tend to distribute their consumption over their lifetime. It is, in its basic form: [29]
According to life cycle hypothesis, presented by Franco Modigliani, the income and consumption are dependent on stage of life. The reason for that idea is that the income fluctuates during lifetime and savings make it possible to maintain consumption at the required level even in years when income has decreased.
Further theories on the shape of the consumption function include James Duesenberry's (1949) relative consumption expenditure, [9] Franco Modigliani and Richard Brumberg's (1954) life-cycle hypothesis, and Milton Friedman's (1957) permanent income hypothesis.
Modigliani–Miller theorem, Life-cycle hypothesis: 1986 James M. Buchanan (1919–2013) United States "for his development of the contractual and constitutional bases for the theory of economic and political decision-making" [24] University of Chicago: George Mason University: Constitutional economics: 1987 Robert Solow (1924–2023) United States