1) Consumption theories developed by Milton Friedman and Franco Modigliani view consumption as based on permanent income and the life cycle. 2) A consumer's consumption is determined by their total wealth, including nonhuman wealth like financial assets and housing, and human wealth as the present value of expected future labor income. 3) Consumption depends on current income as well as total wealth and expectations about future income, interest rates, taxes, and asset values affect consumption directly and indirectly.

1. Expectations, Consumption, and Investment