Advanced Lectures in Quantitative Economics by Frederick van Der Ploeg PDF

Economics

By Frederick van Der Ploeg

ISBN-10: 0127117032

ISBN-13: 9780127117034

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Example text

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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