Matthias Doepke - Marcroeconomics - Chapter 15,16 pot

... production function equa- tion (11.1) exhibits constant returns to scale, which means that if we double both inputs, output also doubles. Our choice of a constant-returns-to-scale production function ... with 1 See Chapter 1 for a discussion of growth rates and how to compute them. Chapter 11 Economic Growth This chapter examines the determinants of economic growth. A startling fact abo...

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... worker Table 15.4: Notation for Chapter 15 15.1 Two Workers under Autarky 175 Substituting all the constraints into the objective yields: max 1 Taking the first-order condition with respect to ... a thought ex- periment. First we suppose that the relative price of wine is very low. Then we ask what happens as the relative price rises. When is very low, both will make beer be- cause the ... r...

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... works only an integral numbers of years. For non-integral num- bers, you round down to the nearest integral year ,compute ( ), and use that in the simple-interest formula (1.1) for the fraction of ... economists prefer continuous growth rates is that they have the follow- ing desirable property: if you compute the year-by-year continuous growth rates of a series and then take the average of ....

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... problems of constrain- ed maximization when it is either difficult or impossible to solve the constraints for indi- vidual variables. At first we treat the method as a cook-book recipe. After we ... even easier. Above we derived: = 1+ There is no on the right-hand side, so when we take the partial derivative with respect to , the right-hand side is just a constant. Accordingly, = 0, i.e., Cruso...

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... second-period income increases, then does too. Conversely, if second-period in- come decreases, then does too. This makes intuitive sense. If 2 goes down, households will try to invest first-period ... )= 1 [ 2 + 1 (1 + )] (1 + )(1 + ) so we set the left-hand side to zero and solve for : 1 = [ 2 + 1 (1 + )] (1 + )(1 + ) (3.11) 3.2 A Two-Period Model 23 3.2 A Two-Period Model We begin this sect...

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... one market-clearing constraint is redundant. This means that if each consumer’s budget constraint is satisfied and all but one market-clearing con- ditions hold, then the last market-clearing ... pure-exchange economy, assume that the bud- get constraints for each of the consumers and the market-clearing constraints for the first 1 goods are satisfied. We want to show that the last market-cleari...

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... interest rate in- creases. That means that the right-hand side increases, so the left-hand side must increase in order to maintain the equality. There are two ways that the left-hand side can ... equation (6.3) gives us: = 1 1 = 1+ 1 1 1 = 1+ Chapter 6 The Labor Market This chapter works out the details of two separate models. Section 6.1 contains a one- period model in which households a...

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... monetary pol- icy. While the prime emphasis of the cash-in-advance model is the inefficiency of holding cash instead of interest-bearing assets, Chapter 19 turns to the issue of expected versus un- expected ... inflation that we will pick up later in this book. Chapter 18 is concerned with the coordination of monetary 8.3 A Cash-in-Advance Economy 61 8.3 A Cash-in-Advance Economy In this se...

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... Cycles Technology shocks: Real-world production functions change over time. New tech- nologies like computers or robots alter the production process and raise overall pro- ductivity. Sometimes, production ... computers. Monetary shocks: We saw in Chapter 8 on inflation that there are real effects of mon- etary policy. Therefore random changes to money supply or interest rates are a po- tenti...

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... war steady-state, but the relatively short duration of the war prevents it from ever reaching that steady-state. After the war the econ- omy transitions slowly back to its pre-war steady-state. ... fully discuss tax policy, for this chapter we will assume that the gov- ernment levies a very special kind of tax: a lump-sum tax. That is, the government an- nounces a spending plan and then ......

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