Macroeconomics

F I G U R E  

1 7 - 1 2

$

Wealth

Income

Saving

Consumption

Dissaving

Retirement

begins

End

of life

Consumption, Income, and Wealth

Over the Life Cycle

If the consumer

smooths consumption over her life (as

indicated by the horizontal consump-

tion line), she will save and accumulate

wealth during her working years and

then dissave and run down her wealth

during retirement.

2

To read more about the consumption and saving of the elderly, see Albert Ando and Arthur Kennic -

kell, “How Much (or Little) Life Cycle Saving Is There in Micro Data?’’ in Rudiger Dornbusch, Stanley

Fischer, and John Bossons, eds., Macroeconomics and Finance: Essays in Honor of Franco Modigliani (Cam-

bridge, Mass.: MIT Press, 1986): 159–223; and Michael Hurd, “Research on the Elderly: Economic Sta-

tus, Retirement, and Consumption and Saving,” Journal of Economic Literature 28 ( June 1990): 565–589.

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