Expectations and planning

Households and firms decide their behavioural plan depending on events which are occurring in the current period and on expectations of events which will happen in the future. Their planning is not confined to the present only; they will decide on plans for the coming several weeks simultaneously with that for the current week. In the present market, however, only that part of this long-run planning which concerns current needs is carried out. It is, of course, impossible that the remaining part, concerned with the future, is carried out in the present week; that part of the planning concerned with the next week, week 1, will become effective in the next week but it will not necessarily be carried out in the same way as was decided in the present week, week 0.

Obviously one week has elapsed between week 0 when the long-run planning was decided and week 1 when the relevant part of that planning is carried out and therefore some data will have changed. Unexpected changes may occur in the individual's tastes or in the available techniques of production; also the view of future economic events may have changed during that lapse of time. Therefore as time goes by each individual and each firm will not necessarily implement the plan as it was decided. It will be examined and revised at the beginning of each week. Thus economic plans depend on expectations about the future as well as on current events.