May 27, 2005
The IS/LM Model
The IS curve:
The LM curve:
Fiscal (top) and monetary (bottom) policy:
The Keynesian and Classical Models have distinctly different implications.
The Classical Model business cycles:
This Phillips Curve handout shows how the actual evidence compares to the implications of these two models.
Posted by bparke at 11:13 PM | Comments (0)
Income Tax Effects
What if Tax = alpha * Y? The answer to this homework question is that the multipliers are smaller.
Posted by bparke at 11:09 PM | Comments (0)
May 26, 2005
The Simple Keynesian Model
Our first look at this model is quite simplified.
Keynes was trying to explain why the wage rate could not be relied upon to dissipate unemployment.
Our second look (next day) added more features.
This is a case where the equations show more than does the diagram.
We derived a precursor to the IS curve.
The equilibrium condition behind the IS curve:
Add an LM curve and we have a model.
Posted by bparke at 10:59 PM | Comments (0)
May 24, 2005
Potential Real Effects of a Tax Cut
If a tax cut changes the after-tax return to labor, then the labor supply curve can shift, changing the level of real output.
Posted by bparke at 10:56 PM | Comments (0)
The Classical Model - II
Adding AS/AD and Loanable Funds completes the model.
Fiscal policy has no obvious effect outside the loanable funds diagram (unless tax rate changes affect labor supply).
Monetary policy affects only the nominal price level, not real quantities.
Posted by bparke at 10:50 PM | Comments (0)
May 23, 2005
The Classical Model - I
The supply and demand for labor are the fundamental determinants of the amount of production.
Business cycles result from shocks to the production function.
We derived the labor supply curve and also considered the famous backward-bending labor supply curve.
The government could shift the labor supply curve by changing the tax rate for labor income (left). The classic welfare problem is on the right.
Posted by bparke at 10:41 PM | Comments (0)
Labor Demand - The Hard Way
In response to the homework question, we attempted to derive a labor demand curve from the AC/MC diagram. This does not yield the most satisfying result.
Posted by bparke at 10:39 PM | Comments (0)
May 22, 2005
Theory of the Consumer
Indifference curves do not cross for the same reason that elivation contours on a relief map do not cross.
Do not let your indifference curves look like part of this map:
The income effect is ambiguous:
Posted by bparke at 10:37 PM | Comments (0)
Theory of the Firm
Posted by bparke at 10:32 PM | Comments (0)
Who Pays a Sales Tax?
Our first model presents a nice opportunity to hone our skills with supply and demand. The question is: who pays a sales tax?
Posted by bparke at 08:59 PM | Comments (0)
May 18, 2005
Welcome
Welcome to the course web site.
Posted by bparke at 08:07 PM | Comments (0)