Intermediate macroeconomics. Introduction to the equilibrium model

Сентябрь 3, 2022

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Intermediate macroeconomics. Introduction to the equilibrium model

Содержание

2. Intermediate Macroeconomics Introduction to the Equilibrium Model The Parsimonious Model What is an Equilibrium Model? Equilibrium
3. Intermediate Macroeconomics The Parsimonious Model Make simplifying assumptions Parsimonious – stingy, miserly Occam’s Razor - eliminate
4. Intermediate Macroeconomics The Parsimonious Model Simplifying assumptions for our models Aggregate output ≡ National income National
5. Intermediate Macroeconomics What is an Equilibrium Model? Assumed equilibrium condition GDP Accounting (Chapter 2): National Income
6. Intermediate Macroeconomics What is an Equilibrium Model? Disequilibrium Disequilibrium: aggregate output (or national income) is not
7. Intermediate Macroeconomics 3. Equilibrium Model Solution Method 1. Substitute the given equations into the equation for
8. Intermediate Macroeconomics 4. Simple Equilibrium Model in Action Describing the economy AD = C + I
9. Intermediate Macroeconomics 4. Simple Equilibrium Model in Action Solving the model 1. Substitute given equations into
10. Intermediate Macroeconomics 4. Simple Equilibrium Model in Action Implications of the model In equilibrium: G +
11. Intermediate Macroeconomics 4. Simple Equilibrium Model in Action Crowding Out In equilibrium: G + TR -
12. Intermediate Macroeconomics 4. Simple Equilibrium Model in Action Ricardian Equivalence In equilibrium: G + TR -
13. Intermediate Macroeconomics 4. Simple Equilibrium Model in Action Twin Deficits In equilibrium: G + TR -
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Слайд 2

Intermediate Macroeconomics
Introduction to the Equilibrium Model
The Parsimonious Model
What is an Equilibrium

Model?
Equilibrium Model Solution Method
Simple Equilibrium Model in Action

Слайд 3

Intermediate Macroeconomics
The Parsimonious Model Make simplifying assumptions
Parsimonious – stingy, miserly
Occam’s Razor -

eliminate complicating details that don’t significantly contribute to the model
Don’t include unimportant variables
Ceteris Paribus (other things being equal) - Hold constant variables that are not the focus of your interest

Слайд 4

Intermediate Macroeconomics
The Parsimonious Model Simplifying assumptions for our models
Aggregate output ≡ National

income
National income ≡ Personal income

Слайд 5

Intermediate Macroeconomics
What is an Equilibrium Model? Assumed equilibrium condition
GDP Accounting (Chapter 2):
National

Income ≈ Aggregate Supply
Macroeconomic Models:
Aggregate Supply (AS) = Aggregate Demand (AD)
or
National Income (Y) = Aggregate Demand (AD)

Слайд 6

Intermediate Macroeconomics
What is an Equilibrium Model? Disequilibrium
Disequilibrium: aggregate output (or national income)

is not equal to aggregate demand
Undesired Inventory Accumulation: a symptom of disequilibrium where
aggregate output > aggregate demand
Undesired Inventory Draw: a symptom of disequilibrium where
aggregate output < aggregate demand

Слайд 7

Intermediate Macroeconomics
3. Equilibrium Model Solution Method
1. Substitute the given equations into

the equation for aggregate demand AD.
2. Apply the assumed equilibrium condition:
Y = AD
3. Substitute the derived equation for AD from step 1 into the right-hand side of the equilibrium condition in step 2.
4. Simplify the equation. This often means solving for income (Y), since Y should appear on both the left- and right-hand sides of the equation in step 3.

Слайд 8

Intermediate Macroeconomics
4. Simple Equilibrium Model in Action Describing the economy
AD =

C + I + G + NX
AD = aggregate demand
C = consumption
I = investment
D = government spending
NX = net exports (exports – imports)
YD = C + S
YD = disposable income
S = savings
YD = Y + TR – TA
Y = national income
TR = government transfer payments
TA = government taxes

Слайд 9

Intermediate Macroeconomics
4. Simple Equilibrium Model in Action Solving the model
1. Substitute

given equations into equation for AD:
YD = YD
C + S = Y + TR – TA
C = Y + TR – TA - S
AD = C + I + G + NX
= (Y + TR - TA - S) + I + G + NX
2. Apply equilibrium condition:
Y = AD
3. Substitute solution for AD from Step 1:
Y = Y + TR - TA - S + I + G + NX
Simplify equation:
G + TR - TA = S - I - NX

Слайд 10

Intermediate Macroeconomics
4. Simple Equilibrium Model in Action Implications of the model
In

equilibrium:
G + TR - TA = S - I - NX
Crowding Out
Ricardian Equivalence
Twin Deficits

Слайд 11

Intermediate Macroeconomics
4. Simple Equilibrium Model in Action Crowding Out
In equilibrium: G

+ TR - TA = S - I - NX
Assume:
Increase in government deficit (G + TR - TA)
Savings (S) and net exports (NX) constant
Result:
Decrease in investment (I)

Слайд 12

Intermediate Macroeconomics
4. Simple Equilibrium Model in Action Ricardian Equivalence
In equilibrium: G

+ TR - TA = S - I - NX
Assume:
Increase in government deficit (G + TR - TA)
Investment (I) and net exports (NX) constant
Result:
Increase in savings (S)

Слайд 13

Intermediate Macroeconomics
4. Simple Equilibrium Model in Action Twin Deficits
In equilibrium: G

+ TR - TA = S - I - NX
Assume:
Increase in government deficit (G + TR - TA)
Savings (S) and investment (I) constant
Result:
Decrease in net exports (NX)

Intermediate macroeconomics. Introduction to the equilibrium model

Содержание

Intermediate MacroeconomicsIntroduction to the Equilibrium ModelThe Parsimonious ModelWhat is an Equilibrium

Intermediate MacroeconomicsThe Parsimonious Model Make simplifying assumptionsParsimonious – stingy, miserlyOccam’s Razor -

Intermediate MacroeconomicsThe Parsimonious Model Simplifying assumptions for our modelsAggregate output ≡ National

Intermediate MacroeconomicsWhat is an Equilibrium Model? Assumed equilibrium conditionGDP Accounting (Chapter 2):National

Intermediate MacroeconomicsWhat is an Equilibrium Model? DisequilibriumDisequilibrium: aggregate output (or national income)

Intermediate Macroeconomics3. Equilibrium Model Solution Method1. Substitute the given equations into

Intermediate Macroeconomics4. Simple Equilibrium Model in Action Describing the economyAD =

Intermediate Macroeconomics4. Simple Equilibrium Model in Action Solving the model1. Substitute

Intermediate Macroeconomics4. Simple Equilibrium Model in Action Implications of the modelIn

Intermediate Macroeconomics4. Simple Equilibrium Model in Action Crowding OutIn equilibrium: G

Intermediate Macroeconomics4. Simple Equilibrium Model in Action Ricardian EquivalenceIn equilibrium: G

Intermediate Macroeconomics4. Simple Equilibrium Model in Action Twin DeficitsIn equilibrium: G

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