岭南学院中级宏观Dissertation3.pptVIP

Dissertation 3______Cen Hui Classical Macroeconomics in the Long Run Outlines Now we enter the palace of “Economic Fluctuation”, which is the second main theme concerned with both the Long-Run and Short-Run horizons. This dissertation will introduce the Classical Macroeconomics in the Long-Run horizon. Outlines Basic assumptions for the Long-run: K,L,A and so on in the economy are fixed; Prices are flexible to adjust to clear all of the markets, so full employment for all factors is valid. In a word, the potential level of output is fixed. Classical Macroeconomics is the study of the economy as a whole in this time horizon. Supplements for Classical Macroeconomics* All of the agents are rational to maximize their benefits. All of the markets are perfectly competitive, and each agent is making decisions at the given level of price. Before transactions, related agents have complete information about the market. Transactions are based on the prices that clear the markets. The typical agents has stable expectations. Outlines The above assumptions has established a perfect price system to ensure that markets are always clear and full employment in the economy is the normal state. Classicist reject the governments’ policies to the economy awfully. (Maybe the above contents are ivory-towered, but in the long-run, such price system may take effects preferably. So we can use Classical theory to explain the behavior of the economy in the long run.) Outlines Classical model divide the economy into two separated sectors-----real sector and money sector. The behaviors of these two sectors are made of three parts: Determinants of employment and output Say’s Law Quantity theory of money Classical Dichotomy and monetary neutrality. Determinants of employment and output Production function is given as Note that K and A are fixed, so the output is only determined by the labor. Properties: 1 2The increase in K or A will enlarge the output level. Determinants of employment and o