Lecture 2 - These are the tools of analyses of the...

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These are the tools of analyses of the interaction between countries in the exchange of goods and services . We start out the chapter by building a closed basic model followed by an open basic model. These basic models are called general equilibrium (GE) models because all variables (consumption, production, and prices, <exports, and imports if there is trade>) in these models are determined simultaneously. The Basic GE Model: Assumptions Assumption: 1 All economic agents are rational, i.e. goal-oriented. Consumers maximize utility and producers maximize profit . Assumption: 2 Two countries: America = A Britain = B Two goods: Soybeans = S Textiles = T Each good is identical in both countries. Some of each is always consumed in each country. Assumption 3: There is no money illusion (on the part of consumers and producers) Producers. Producers take into account all prices. They make decisions based on changes in all prices. Example
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This note was uploaded on 04/03/2012 for the course ECON 300 taught by Professor Gang during the Fall '06 term at Rutgers.

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Lecture 2 - These are the tools of analyses of the...

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