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Household Consumption in Neoclassical Macroeconomics – Assumptions and Reality

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  • Dimitar Damyanov

    () (University of National and World Economy, Sofia, Bulgaria)

Abstract

The main assumptions on which neoclassical economic theory is built and which underlie its recommendations for economic policy include the atomism and rationality in individual behaviour as well as the maximization of utility and profits. Along with several other key conditions, they also form the basis for the neoclassical theory of household consumption and saving. This paper presents several examples of deviations from these assumptions, based on the behaviour of Bulgarian households during the period 2000 – 2018. They highlight the need for a careful evaluation of prevailing conditions whenever we try to model economic dynamics and to develop and implement macroeconomic policies.

Suggested Citation

  • Dimitar Damyanov, 2019. "Household Consumption in Neoclassical Macroeconomics – Assumptions and Reality," Nauchni trudove, University of National and World Economy, Sofia, Bulgaria, issue 3, pages 111-121, November.
  • Handle: RePEc:nwe:natrud:y:2019:i:3:p:111-121
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    File URL: http://unwe-research-papers.org/bg/journalissues/article/10112
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    Keywords

    consumption; saving; consumption smoothing; liquidity constraints;

    JEL classification:

    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications

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