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Macroeconomic Theory$
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Jean-Pascal Benassy

Print publication date: 2011

Print ISBN-13: 9780195387711

Published to Oxford Scholarship Online: April 2015

DOI: 10.1093/acprof:osobl/9780195387711.001.0001

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Consumption, Investment, Inventories, and Credit

Consumption, Investment, Inventories, and Credit

(p.337) 14 Consumption, Investment, Inventories, and Credit
Macroeconomic Theory

Jean-Pascal Bénassy

Oxford University Press

This chapter provides an exposition on the facets of consumption, investments, inventories, and credit using a partial equilibrium approach. It begins by discussing features of consumption such as consumption smoothing and Milton Friedman’s “permanent income”. It then moves on to discuss investments with respect to the application of profit maximization at the partial equilibrium level which eventually leads to high investment demand. It also introduces issues with inventories such as potential consumer rationing and production smoothing. Lastly, this chapter presents a study on credit rationing and includes sample problems regarding consumption and financial investment, investment and installation costs, and inventory and output with autocorrelated demand.

Keywords:   consumption, investments, inventories, credit, partial equilibrium approach, consumption smoothing, permanent income, potential consumer rationing, production smoothing

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