ABSTRACT
The goal of microfoundations is to explain aggregate relationships in terms of individual behavior. In contrast, the traditional macroeconomic model goes about describing the economy by explaining some aggregate variables in terms of other aggregate quantities; e.g., aggregate consumption is described as a function of aggregate income. The macroeconomic approach implicitly assumes that only the aggregate amountsmatter, that the distribution of these quantities among the microeconomic agents is irrelevant. If aggregate income is $6 trillion, then aggregate consumption is, say, $4 trillion, regardless of how the $6 trillion is allocated among the population.
