The Dissimilarity of Economic Units

Graeme S. Dorrance

Chapter 2 in National Monetary and Financial Analysis, 1978, pp 17-30 from Palgrave Macmillan

Abstract: Abstract The responses of each economic unit to financial stimuli are unique and, hence, aggregative analysis is inadequate to at least some degree, in that the disparities in the utility functions of different units mean that any aggregation will incorporate the results of decisions by dissimilar units. Yet, some degree of aggregation is necessary. It is impossible, even with modern computation facilities, to envisage a system of financial accounts that would record the transactions of each economic unit, even if the data could be obtained for such an exercise. The criteria for this essential aggregation should be such that the accounts of units with similar utility functions are combined to provide meaningful statements for recognisable sectors. These accounts should recognise that assets and liabilities have different attributes for different units. For final consumers, assets have direct utility (see chapter 4) and this utility may be regarded as part of consumption. For non-consuming sectors, the utility of assets is indirect—they are instruments of production (see chapter 6). Hence, the preference patterns for the same type of asset (such as, money) will be different for consumer units than for non-consuming units, and different types of non-consuming units will have differing types of preference patterns. At the same time, individual types of assets and liabilities are homogenous. The factors influencing the demand for any one type may be quite diverse and determined by the nature of the individual demanding sectors.

Keywords: Interest Rate; Financial Asset; Trade Credit; Economic Unit; Asset Holder (search for similar items in EconPapers)
Date: 1978
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DOI: 10.1007/978-1-349-15858-4_3

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