Household Sector Behavior in the Expanded Model

Abstract

In the expanded model currently under construction, the household sector faces a variety of decisions at time t with respect to its activities in the labor, commodity and financial markets. It must decide the number of people who will attempt this period to find jobs for next period, the volume of consumption goods it will buy, the amount of physical capital it will accumulate, the amount it will borrow from depository institutions, as well as the amounts of currency, checkable deposits, and equity shares it will hold at the end of the current period. In the simple model, presented earlier, the household sector purchased equity shares only from private nonfinancial businesses. However in this expanded version it also buys shares from private depository institutions. Because household expenditures on capital goods are assumed to be too large to be financed out of current household saving (defined as current disposable income less current expenditures on consumption goods), the sector presumably finances its capital goods expenditures by borrowing from the private depository institutions.