11-02-10-macromodel-revised (10) (1) (1)a (2)

11-02-10-macromodel-revised (10) (1) (1)a (2) - Clearing Of...

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Clearing Of The Labor Market Assuming That Wages Are Flexible, Then Everyone Who Wants A Job At The Prevailing Wage Can Obtain One. With Stable Loci For Demand And Supply Of Labor, Output Is Stable For This Labor- Market-Clearing Economy. Ignoring The Interest-Rate Effect Which Williamson Includes, Y s = z·Y 0
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Summary Of Closed-Economy Macro, Classical View This Repeats, With Some Modifications, The Ideas Which Are Covered In Williamson, Chapters 9,10
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The Demand Structure Of A Simple Closed Economy Looking At the Goods Market S + T – I – G = 0 S = -a + (1-b)·Y d – T = -70 + .33·Y d - T C = a + b·Y d = +70 + .67·Y d I = I 0 – h·r = 190 – 1000·r T = T 0 = 300 G = G 0 = 300
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Specifics Of Variables S Is Saving, T Is Taxes, I Is Investment, G Is Government Expenditures, Y d Is Aggregate Demand, a Is The Intercept Term Of The Consumption Function, b Is The Marginal Propensity To Consume And Has A Value Between Zero And One (That Is, It Has A Fractional Value). h Is A Parameter. The Favorite Values For These Parameters Are: a = 70; b = .67; h = 1000. I 0 , G 0 , And T 0 Are Exogenous Variables. Favorite Values Are 190, 300, And 300
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The Supply Side Y s = z·Y 0 (By Assuming That r Has A Positive But Small Influence On Labor Supply, Williamson Makes His Diagrammatic Analysis Very Complicated.) Y s = Y d = Y = z·Y 0 Our Favorite Value For Y 0 Is 1500, And For z Is 1.
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The Money Market m d = p + m d 0 + 2/3000·Y – l ·r m s = m s T m s = m d More generally: m s = m s T + d·(r – r T ) We will typically deal with the polar cases: Either d = 0, which represents the case where the Bank of Canada keeps the money supply at its target level, (This Is The Formulation of Chapter 10 of Williamson); Or d = ∞, which represents the case where the Bank of Canada keeps the interest rate at its target level (Which Is What Williamson Assumes In Chapter 12) We Start With The Case d = 0. Our Favorite Value For m d 0 Is 5.12. Our Favorite Value For m s T Is 7.
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Specifics of Money Demand And Supply We Will Focus On Three Cases: d = 0; d = 1; And d = In Order To Keep The Algebra Manageable, We
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This note was uploaded on 07/16/2011 for the course ECON 2154 taught by Professor Boyer during the Winter '10 term at UWO.

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11-02-10-macromodel-revised (10) (1) (1)a (2) - Clearing Of...

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