| Barro-Ricardo equivalence proposition | See Ricardian equivalence.
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| business saving | Saving by firms; profits not paid out to owners/stockholders.
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| excess sensitivity | When one variable’s response to changes in another is larger than theory predicts. Consumption, for example, is said to exhibit excess sensitivity; it changes more in response to predictable income changes than the life-cycle–permanent-income theory suggests.
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| excess smoothness | When one variable’s response to changes in another is smaller than theory predicts. Consumption, for example, exhibits excess smoothness; it changes by a smaller amount than the life-cycle–permanent-income theory suggests
in response to unexpected changes in income.
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| government saving | Saving by the government; the difference between the revenues taken in (i.e., from taxes) and the money used/given away (i.e., transfer payments, interest payments on the national debt).
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| life-cycle hypothesis | Consumption theory emphasizing that consumers consume and save out of total life income and plan to provide for retirement.
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| lifetime budget constraint | Limits amount of money we can spend over our lifetimes;
the total amount of money that we earn/inherit/find on the street over our lifetimes.
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| lifetime utility | The total benefit we derive from consumption (and whatever other activities we value) over our lifetimes.
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| liquidity constraint | Limitations on ability to borrow in order to finance consumption plans.
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| marginal utility of consumption | The increase in utility from consuming an additional unit of some good.
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| myopia | Shortsightedness by households regarding future income streams.
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| operational bequest motive | A reason for saving; desire to leave some of one’s money
behind for descendants, friends, or charity.
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| permanent-income theory | Says that people form expectations of their future income
and choose how much to consume based on those as well as their current income.
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| personal saving | Saving by individuals and families.
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| private saving | Saving by individuals, by families, and by firms; saving by everyone other than the government.
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| random-walk model of consumption | Model that suggests consumption should follow
a random walk. Because consumption is supposedly based on expected future income as well as current income, changes in consumption should not be predictable.
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