modeling

modeling - Modeling Issues in Macroeconomics Modeling...

Info iconThis preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
Modeling Issues in Macroeconomics Modeling Issues in Macroeconomics Articles by Bell, Hahn, and Hausman Articles by Bell, Hahn, and Hausman Macroeconomics I – ECON 309 S. Cunningham
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 Models and Reality Models and Reality Under liberalism, human beings are regarded as individuals detached from family, clan, class, or nation, as independent, self-determining beings. This leads to methodological individualism . If we regard the economic system as an enormous composition of independent, specialized agents, then the central problem of economic inquiry is the explanation of the exchange process. If the exchange is made through free markets, then the explanation of exchange is coincident with the explanation of prices. Note: the market process does not require that all people be selfish, but rather that they have a self-interest and act purposefully.
Background image of page 2
3 Models and Reality Models and Reality (Continued) (Continued) Marginalists . The neoclassicals make relative prices and relative scarcity the fulcrums of economic analysis. Methodological individualism Focus on the margin Diminishing marginal utility Price theory vs. value theory: the measure of something is its utility, not its value General Equilibrium Utility maximization “The individual is imagined in a constant process of delicately balancing his marginal expenditures and marginal utilities.” here we have the idea of the “economic man” , a term introduced by Pareto.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
4 Models and Reality Models and Reality (Continued) (Continued) Say’s Law “Supply creates its own demand.” One never sells without an intention to buy. Critical Assumptions: All agents optimize Wages are equal to the marginal product of labor: A producer would never offer a wage greater than the value of the added output his labor would produce, so that the number of workers hired by a firm would be set at the point where the cost of the marginal worker would equal the value of his output. No leakages (barter economy?) Best of all possible worlds
Background image of page 4
5 Models and Reality Models and Reality (Continued) (Continued) Equilibrium Marshall’s neoclassical economics: Relates to the determination of price in one market (price theory) Equilibrium is a state that persists, and usually occurs when the forces of supply and demand are in balance (equal) Walras’ neoclassical economics: Equilibria in all markets simultaneously (S=D) Tatonnement Assumes perfect competition and no technological progress it is static. Yields a system of equations with fixed coefficients to be solved simultaneously.
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
6 Models and Reality Models and Reality (Continued) (Continued) Four bridges to reality: 1. Quantity Theory (Locke through Friedman) Money is not wealth. Money can only reflect or distort real relationships. Prices vary in direct proportion to the supply of
Background image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 22

modeling - Modeling Issues in Macroeconomics Modeling...

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online