Dispersion, heterogeneity, standard deviation/variance, inequality – used to comments on data
If Y goes up, without increasing K, GDP per capita goes up. We cant just increase K and N, to achieve Y over per
capita. How to achieve GDP per capita, how we end up increasing A (productivity).
Secular stagnation: the gap, or difference between a variable and its trend line.
Real vs Nominal GDP
Nominal GDP is the value of goods/services measured at current prices, which will increase if either prices rise
or quantities – increases with price increases even if quantities are unchanged
Real GDP is the value of goods/services measured using a constant set of prices (uses prices in a fixed base
year, j) – only increases if quantities increase
(If all prices double, with unchanged quantities, we are not better off)
Macro productivity, then industry and then firm level productivity.
Y=AFK
Productivity is a component of real wage.
Business and Consumer Optimal Decision Making:
Y=C+I
To consume tomorrow, you’ll have to save a portion today. How much you want to consume today, by which,
how much you can save today, by which, how much consumption you take tomorrow. Giving you todays C, and
one portion of Y.
Representative consumer/household – identical consumers in rational
4 Components in the framework:
- Model environment: timing, decisions and variables
- Preference and utility function
- Budget constraint
- Consumer optimization
, Today vs Tomorrow
How much you want to consume today and how much of asset (wealth), you want to carry over for tomorrow.
,1. Consumption saving behaviour (optimality condition) – pinned down by the interest rate
How much you consume today and
tomorrow based on interest. Strictly
increasing consumption (normal good),
as consumption increases, utility
increases.
, Consider your budget – which
combination you can achieve with your
budget that gives you the maximum
utility.
In a dynamic problem, we need to
think about tomorrow. At is money
saved – asset. C1 + A1 is your
consumption + saving = expenditure.
RHS is income. Y1 is income you
receive in period 1 (income today).
(1+i) is the interest rate on assets.
Lagrange method to solve the first
order condition to give you
consumption today and tomorrow
and amount of saving.
Budget constraint t1, t2 – combine these two equations to combine it to A1 = lifetime budget constraint* (crucial
equation to write down on exam not to miss method marks). Optimization, first step is to put the equations together
to eliminate A1 and put on left hand side. Then we can put it in the other equation.
Y2 is income tomorrow + Saving carried from yesterday
Negative relationship between C2 and C1 =
-(1+i).
If Y goes up, without increasing K, GDP per capita goes up. We cant just increase K and N, to achieve Y over per
capita. How to achieve GDP per capita, how we end up increasing A (productivity).
Secular stagnation: the gap, or difference between a variable and its trend line.
Real vs Nominal GDP
Nominal GDP is the value of goods/services measured at current prices, which will increase if either prices rise
or quantities – increases with price increases even if quantities are unchanged
Real GDP is the value of goods/services measured using a constant set of prices (uses prices in a fixed base
year, j) – only increases if quantities increase
(If all prices double, with unchanged quantities, we are not better off)
Macro productivity, then industry and then firm level productivity.
Y=AFK
Productivity is a component of real wage.
Business and Consumer Optimal Decision Making:
Y=C+I
To consume tomorrow, you’ll have to save a portion today. How much you want to consume today, by which,
how much you can save today, by which, how much consumption you take tomorrow. Giving you todays C, and
one portion of Y.
Representative consumer/household – identical consumers in rational
4 Components in the framework:
- Model environment: timing, decisions and variables
- Preference and utility function
- Budget constraint
- Consumer optimization
, Today vs Tomorrow
How much you want to consume today and how much of asset (wealth), you want to carry over for tomorrow.
,1. Consumption saving behaviour (optimality condition) – pinned down by the interest rate
How much you consume today and
tomorrow based on interest. Strictly
increasing consumption (normal good),
as consumption increases, utility
increases.
, Consider your budget – which
combination you can achieve with your
budget that gives you the maximum
utility.
In a dynamic problem, we need to
think about tomorrow. At is money
saved – asset. C1 + A1 is your
consumption + saving = expenditure.
RHS is income. Y1 is income you
receive in period 1 (income today).
(1+i) is the interest rate on assets.
Lagrange method to solve the first
order condition to give you
consumption today and tomorrow
and amount of saving.
Budget constraint t1, t2 – combine these two equations to combine it to A1 = lifetime budget constraint* (crucial
equation to write down on exam not to miss method marks). Optimization, first step is to put the equations together
to eliminate A1 and put on left hand side. Then we can put it in the other equation.
Y2 is income tomorrow + Saving carried from yesterday
Negative relationship between C2 and C1 =
-(1+i).
