The Peopling of Macroeconomics: Microeconomics of Aggregate Consumer Expenditures

Satyajit Chatterjee

Vice President and Economist

Q1 2009

Business Review — Since the 1950s economists have been building a theory of aggregate consumer spending, seeking to understand how individual households choose to spend and how their choices change when interest rates, the unemployment rate, and other economic indicators change.

Before that time, economists looked for “economic laws” that would explain the connection between one set of economic aggregates and another, without considering the decisions of individual households. Although the process of connecting macroeconomic aggregates to individuals’ behavior is far from complete, predictions of aggregate consumer spending are now rooted in predictions of individual behavior. In this article, Satyajit Chatterjee takes readers through a brief historical survey from the early work on the consumption function to the theory of aggregate consumer spending in modern macroeconomic models.

This article appeared in the First Quarter 2009 edition of Business Review.

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