Economics Dynamics Problems 27

Economics Dynamics Problems 27 - 1 and b d ∈ Q 2 T − 1...

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Introduction 11 Example 1.2 Consider again the nominal rate of interest, denoted i . This can more accurately be deFned as the amount of money received over some interval of time divided by the capital outlay. Hence, i [ MT 1 ] [ M ] = [ T 1 ] Example 1.3 Consider the linear static model of demand and supply, given by the following equations. q d = a b pa , b > 0 q s = c + dp d > 0 q d = q s = q (1.4) with equilibrium price and quantity p = a c b + d , q = ad + bc b + d and with dimensions q d , q s [ QT 1 ] , p [ MQ 1 ] The model is a flow model since q d and q s are deFned as quantities per period of time. 4 It is still, however, a static model because all variables refer to time period t . Because of this we conventionally do not include a time subscript. Now turn to the parameters of the model. If the demand and supply equations are to be dimensionally consistent, then a , c [ QT
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Unformatted text preview: 1 ] and b , d ∈ [ Q 2 T − 1 M − 1 ] Then a − c ∈ [ QT − 1 ] b + d ∈ [ Q 2 T − 1 M − 1 ] p ∗ ∈ [ QT − 1 ] [ Q 2 T − 1 M − 1 ] = [ MQ − 1 ] Also ad ∈ [ QT − 1 ][ Q 2 T − 1 M − 1 ] = [ Q 3 T − 2 M − 1 ] bc ∈ [ Q 2 T − 1 M − 1 ][ QT − 1 ] = [ Q 3 T − 2 M − 1 ] q ∗ ∈ [ Q 3 T − 2 M − 1 ] [ Q 2 T − 1 M − 1 ] = [ QT − 1 ] Where a problem sometimes occurs in writing formulas is when parameters have values of unity. Consider just the demand equation and suppose it takes the 4 We could have considered a stock demand and supply model, in which case q d and q s would have dimension [ Q ]. Such a model would apply to a particular point in time....
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This note was uploaded on 12/14/2011 for the course ECO 3023 taught by Professor Dr.gwartney during the Fall '11 term at FSU.

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