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Showing posts with the label Autonomous Consumption

Decision Making as Output and Bounded Rationality

  The classical economics theories proceed on the assumption of rational agents. Rationality implies the economic agents undertake actions or exercise choices based on the cost-benefit analysis they undertake. The assumption further posits that there exists no information asymmetry and thus the agent is aware of all the costs and benefits associated with the choice he or she has exercised. The behavioral school contested the decision stating the decisions in practice are often irrational. Implied there is a continuous departure from rationality. Rationality in the views of the behavioral school is more an exception to the norm rather a rule. The past posts have discussed the limitations of this view by the behavioral school. Economics has often posited rationality in the context in which the choices are exercised rather than theoretical abstract view of rational action. Rational action in theory seems to be grounded in zero restraint situation yet in practice, there are numerous restra

Is the Monetary Policy Dead?

  The recent monetary policy announcement by the RBI governor was not surprising in terms of its actions. It has chosen to retain the key ratios as they are. Further, they have indicated the possibility of a continuing negative growth of the GDP in the remainder part of the financial year. The inflation is relatively higher in CPI terms but low in terms of WPI. Foreign direct investment continues to increase with India currently having the largest quantum of foreign exchange reserves in its history. It would however be pertinent to understand the dynamics of monetary policy at this stage.   Monetary policy as noted in earlier posts too, is rooted in stimulating demand and supply through changes in the price of money, the interest rates. Either the policy can point towards interest rate stability which implies continued changes in money supply. Alternatively, if the focus is on stable money supply, interest rates have to keep on changing to achieve the desired money supply target. I