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Showing posts with the label Consumption

Decision Making as Output and Bounded Rationality

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  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
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Consumption-Investment Dynamics and the Budget

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  The Union Budget for the financial year 2021-22 is to be presented to Parliament in less than a month from now. The focus would be on the stimulus the government would give to different sectors as they seek to recover from the lockdown induced by the Chinese pandemic. The focus of the government in 2020 would have to be ensure the firms and households remain solvent during the pandemic lockdown but as the vaccinations are underway, there would be direction necessitated for revival of the economy. The economy must shed the past and look towards the future. An important indicator would be however the boost to the consumption. The economic revival in India has to pick either through a growth in consumption or growth in investment. The government expenditure has ensured the economy remains stable in turbulent times and has saved further blushes for the economy. it is time to revive the other components of aggregate demand.   Investment is sought to be increased through Atmanirbhar pr
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A Note on Circular Flow of Income and National Income Accounts

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Macroeconomics differs from microeconomics in the mode of analysis. While the latter uses the bottom up approach using a profit maximising firm or utility maximising individual as the starting point, the former uses the geographic construct of an economy as a starting point. To borrow from the forest, one can analyse the forest from the point of the various animals, birds, reptiles, insects, plants, shrubs, creepers, trees, herbs, caves, water bodies, soil among many other entities found in the forest. One can analyse them individually, their functions in a group, their interactions, etc. This is bottom up approach, thus the micro way of analysis. The other way is to have helicopter view or bird’s eye view of the forest. One can observe the total area the forest occupies as percentage of landmass, the oxygen content released by the forest, the carbon dioxide and other green gases absorbed by the forest, the amount of water by volume in the forest, the nature of flora and fauna in th
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