Advanced Lectures in Quantitative Economics by Frederick van Der Ploeg PDF


By Frederick van Der Ploeg

ISBN-10: 0127117032

ISBN-13: 9780127117034

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34 Of course, the simplicity of this derivation follows mainly from the assumption that notional labour supply is fixed. For example, this ensures that the notional and effective aggregate demand schedules coincide. |, 1 C W w w-) w P yS(p,w2) A P* PG / ι'! s) / G /^C (c) y* y 0' Ί' A· p w2 Figure 11. Derivation of the tripod diagram. where c is private-sector consumption (as in previous sections) and s is the exogenously fixed constraint on net exports. ) The feature of Figure 11a which distinguishes it from Figures 1 lb and 1 lc is that the aggregate supply schedule, ys(p, w), is drawn on the assumption that the wage rate equals that value w* which 38 Peter Neary would obtain in a Walrasian equilibrium.

Suppose first that unemployment prevails. This must reduce the actual income received by households and so the condition must be rewritten as follows: 17 The principal differences between my model and that of Dixit are that I assume that households' notional labour supply is fixed and I ignore distribution effects in demand. The consequences of these differences will be noted where appropriate. Neo-Keynesian Macroeconomics in an Open Economy s = y(p, w) - c[p, py(p, w) + rn\. 8), y*, any (w,p) combination which corresponded to a notional trade balance must correspond to an effective trade surplus, when the expenditure-reducing effects of unemployment are taken into account.

Holding w fixed at w*, variations inp now imply different types of equilibrium. *, w*)): y(p, H>, g, s) = min [yd(p, g, s),ys(p, w), y*]. c), output is determined by the aggregate supply schedule and so Classical unemployment prevails. In all cases other than point A itself, the level of output is below the full employment level, y*. *, w*), while points such as C below it correspond to Classical unemployment and points such as B' above it to Keynesian unemployment. ) Figure lib repeats this exercise for a case where the nominal wage rate equals some value wl greater than the Walrasian value.

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Advanced Lectures in Quantitative Economics by Frederick van Der Ploeg

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