11-01-25-macromodel-revised (10) (1) (1)a

-macromodel- - Clearing Of The Labor Market • Assuming That Wages Are Flexible Then Everyone Who Wants A Job At The Prevailing Wage Can Obtain

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Unformatted text preview: 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 I s Stable For This Labor-Market-Clearing Economy. • I gnoring The I nterest-Rate Effect Which Williamson I ncludes, Y s = z·Y Summary Of Closed- Economy Macro, Classical View This Repeats, With Some Modifications, The I deas Which Are Covered I n Williamson, Chapters 9,10 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 – h·r = 190 – 1000·r • T = T = 300 • G = G = 300 Specifics Of Variables • S I s Saving, T I s Taxes, I I s I nvestment, G I s Government Expenditures, Y d I s Aggregate Demand, • a I s The I ntercept Term Of The Consumption Function, b I s The Marginal Propensity To Consume And Has A Value Between Zero And One (That I s, I t Has A Fractional Value). h I s A Parameter. The Favorite Values For These Parameters Are: a = 70; b = .67; h = 1000. • I , G , And T Are Exogenous Variables. Favorite Values Are 190, 300, And 300 The Supply Side • Y s = z·Y • (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 • Our Favorite Value For Y Is 1500, And For z Is 1. The Money Market • m d = p + m d + .00067·Y – l ·r • m s = m s T • m s = m d • More generally: m s = m s T + (d/(1-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 = 1, 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 Is 5.12. Our Favorite Value For m s T Is 7. Specifics of Money Demand And Supply • We Will Focus On Three Cases: – d = 0; d = .5; And d = 1 • I n Order To Keep The Algebra Manageable,...
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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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-macromodel- - Clearing Of The Labor Market • Assuming That Wages Are Flexible Then Everyone Who Wants A Job At The Prevailing Wage Can Obtain

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