《宏观经济学》课程PPT教学课件（英文版）Lecture 13 Neoclassical Model

●●● Lecture13 Neoclassical model

0 Lecture 13 Neoclassical Model

Economic Models o Real economy is too complicated to understand o Built your own, simple economy o Ingredients ● People e Goods and technologies Institutions

1 Economic Models  Real economy is too complicated to understand  Built your own, simple economy  Ingredients ⚫ People ⚫ Goods and technologies ⚫ Institutions

●● Microfoundations o Use models that explicitly incorporate household and firm decision problems o Allows to capture how decisions adjust when economic environment of policies change

Microfoundations  Use models that explicitly incorporate household and firm decision problems  Allows to capture how decisions adjust when economic environment of policies change 2

● Using models o Tools to predict outcomes ● Optimization Market Clearing o Check whether model matches data o Yes: Likely that model world captures key features of the real world ●No: Build new model

Using Models  Tools to predict outcomes: ⚫ Optimization ⚫ Market Clearing  Check whether model matches data: ⚫ Yes: Likely that model world captures key features of the real world ⚫ No: Build new model 3

° A Simple Market Economy o One consumer. one firm o Consumer and firm trade in markets o Markets for consumption C and labor N

A Simple Market Economy  One consumer, one firm  Consumer and firm trade in markets  Markets for consumption C and labor N 4

● Market Prices o Prices o Price of consumption normalized to one o Price for n is real wage W

Market Prices  Prices: ⚫ Price of consumption normalized to one ⚫ Price for N is real wage w 5

The household's problem in ●●● the Market Economy o Utility function U(C, D) o C: Consumption(coconuts) ∶: Leisure o Budget constraint o Consumption expenditure equals income from capital and labor .C=wN+P-T o p is given, capital income o n is given by time constraint: n=h

The Household’s Problem in the Market Economy  Utility function U(C,l) ⚫ C: Consumption (coconuts) ⚫ l: Leisure  Budget constraint ⚫ Consumption expenditure equals income from capital and labor ⚫ ⚫ p is given, capital income ⚫ N is given by time constraint: N=h-l 6 s C wN p T = + −

●● The Consumers Preferences o Utility function U(C, D) o Assumptions o More is better than less U>0,u>0 o Diversity is good: Falling MRS o Consumption and leisure are normal goods

The Consumer’s Preferences  Utility function U(C,l)  Assumptions: ⚫ More is better than less: , ⚫ Diversity is good: Falling MRS ⚫ Consumption and leisure are normal goods 7 0 UC  0 Ul 

● Indifference curves D Leisure, I

Indifference Curves 8

Properties of Indifference ●●● Curves o Downward sloping: Follows from positive marginal utilities o Convex: Follows from falling marginal rate of substitution

Properties of Indifference Curves  Downward sloping: Follows from positive marginal utilities  Convex: Follows from falling marginal rate of substitution 9