ch4part ii a one-period model of the macroeconomy(中级宏观经济学,香港中文大学).ppt

Part II A One-Period Model of the Macroeconomy Static vs Dynamic decision making Static decision making involves planning over a single period. (Chapter 4 & 5) Dynamic decision making involves planning over more than one period. (Chapter 6, 7, 8 & 9) Chapter 4 first describes the micro behavior of a representative consumer and a representative firm. Chapter 5 then assembles these in a macro model in order to address some important macro issues. Assumptions on the environment : There are only two goods that consumers desire. Consumption good, which is an aggregation of all consumer goods in the economy. Leisure, which is any time spent other than working in the market. All consumers are alike in terms of preferences, ability, time constraint and budget constraint. If all consumers are identical, then the economy will behave as if there were only one consumer, one that we refer to as the representative consumer. Assumptions on the environment : the representative consumer is a price-taker, meaning that he/she treats market prices as given, and acts as if his/her actions have no effect on those prices. The economy we consider is a barter economy, meaning that all trade involves exchanges of goods for goods in the absence of money. Why impose such unrealistic assumptions ? Recall the discussions in Chapter 1. The Representative Consumer’s Optimization Problem Objective: to make himself/herself as well off as possible given the constraints he/she faces. Two Ingredients in this problem: Consumer’s preferences Consumer’s budget constraint Preferences The preferences of the representative consumer is captured by the utility function, where C is the quantity of consumption, l is the quantity of leisure Any particular pair of consumption and leisure (C, l) is called a consumption bundle. For each consumption bundle, the utility function U assigns a real number so that different bundles can be ranked. Consider two distinct bundles (