SLIDE 3 - CONSUMPTION-LEISURE FRAMEWORK (aka...

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1 C ONSUMPTION- L EISURE F RAMEWORK (aka CONSUMPTION-LABOR FRAMEWORK) J ANUARY 31, 2011 January 31, 2011 2 B ASICS Introduction ± Consumption-Leisure Framework – provides foundation for ± Labor-market supply function ± Goods-market demand function ± An application of the basic consumer theory model… ± …we will put a macro interpretation on it ± Only one time period – no “future” for which to save ± Notation ± c : consumption (“all stuff”) ± n :n u m b e r o f h o u r s s p e n t w o r k i n g p e r w e e k ± l u m b e r o f h o u r s l e i s u r e p e r w e e k ( t i m e s p e n t n o t w o r k i n g ) ± P :d o l l a r p r i c e o f o n e u n i t o f c o nsumption (a nominal variable) ± W :h o u r l y w a g e r a t e i n t e r m s o f d o l l a r s ( a n o m i n a l v a r i a b l e ) ± t :t a x r a t e o n l a b o r i n c o m e ± “Weekly” model a detail ± Could have called it a daily model, a monthly model, a yearly model, … ±
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SLIDE 3 - CONSUMPTION-LEISURE FRAMEWORK (aka...

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