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The Life Cycle Hypothesis

In: Franco Modigliani

Author

Listed:
  • Michael Szenberg

    (Pace University)

  • Lall Ramrattan

    (University of California)

Abstract

Keynes’ consumption function, the absolute income hypothesis, revolutionized economics by shifting macroeconomic analysis from the supply side to the demand side. Total demand includes four major components relating to the household, business, government, and foreign sectors — the areas that have attracted varying degrees of scientific research since the post-WWII period. Modigliani’s life cycle hypothesis (LCH) contribution to macroeconomics fits in the domain of household consumption, the only component for which Keynes had advanced a psychological law that “men are disposed, as a rule and on the average to increase their consumption as their income increases, but not by as much as the increase in their income.”1

Suggested Citation

  • Michael Szenberg & Lall Ramrattan, 2008. "The Life Cycle Hypothesis," Great Thinkers in Economics, in: Franco Modigliani, chapter 4, pages 79-106, Palgrave Macmillan.
    • Handle: RePEc:pal:gtechp:978-0-230-58243-9_4
    DOI: 10.1057/9780230582439_4
    as

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