Lecture 5_February 9A

Lecture 5_February 9A - LOGISTICS Problem Set 1 posted on...

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February 9, 2010 1 L OGISTICS Problem Set 1 posted on web Due Thursday February 25, 2010 Covers material from Chapters 3, 4, and 7 May work in groups BUT EACH PERSON MUST SUBMIT HIS/HER OWN INDEPENDENTLY-WRITTEN SOLUTIONS Practice Problem Set 2 Solutions posted on web Practice Problem Set 3 posted on web (discuss in recitations this week) Chapter 3 and 4: This week and perhaps part of next Chapter 7: Next week
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February 9, 2010 2 I N THE N EWS Current Economic Events News Supplement 2 on the VAT for consumption-saving decision News Supplement 3 on government budget deficit and News Supplement 4 on high levels of government debt now on ELMS Chapter 7: basis for understanding government spending, tax cuts, and government debt Understanding debts and assets a prerequisite for understanding financial-market and credit-market issues Government debts and assets (Chapter 7) Consumer debts and assets (Chapter 3 and 4) Consumer debts and assets (Chapter 3 and 4): Effects of contraction of the financial sector on the macroeconomy? Primarily through the availability of credit to consumers and firms Can study using two-period consumption-savings framework
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February 9, 2010 3 I N THE N EWS Current Economic Events Understanding finance and credit issues requires understanding debts and assets Assets are positive wealth Debts are negative wealth Net wealth = assets debt Impossible to understand the economics of asset and debt accumulation without reference to decision-marking over time
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C ONSUMPTION- S AVINGS M ODEL F EBRUARY 9 , 2010
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February 9, 2010 5 B ASICS Introduction Consumption-Savings Model provides foundation for Two time periods Important: all of our analysis will be conducted from the perspective of the very beginning of period 1… …so a “future” (period 2) for which to save Dynamic models are the staple of modern macroeconomic theory An explicit accounting of time Two periods are sufficient to illustrate the basic principles We will extend to infinite number of periods (Chapter 8)
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February 9, 2010 6 B ASICS Introduction Timeline of events Notation c 1 : consumption in period 1 c 2 : consumption in period 2 P 1 : nominal price of consumption in period 1 P 2 : nominal price of consumption in period 2 Y 1 : nominal income in period 1 (“falls from the sky”) Y 2 :
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This note was uploaded on 03/08/2011 for the course ECON 602 taught by Professor Chugh during the Spring '11 term at Johns Hopkins.

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Lecture 5_February 9A - LOGISTICS Problem Set 1 posted on...

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