ch5 A Closed Economy One Period Macro Model中级宏观经济学.ppt

Chapter 5 A Closed-Economy One-Period Macro Model The Model ? The economy that we consider is a closed economy , i.e. one that does not trade with other economies. ? Besides representative consumer and representative firm, there is an additional agent: the government. ? Government ? The only action of the government is to implement fiscal policy . Fiscal policy refers to the government's choices over its expenditures, taxes, transfers and borrowing. The Government ? Suppose the government wishes to purchase a given quantity of consumption good, G. ? Since there is only one period, the government cannot borrow to finance G. Thus G is paid by taxing the representative consumer. ? The government must observe the balanced budget constraint , G = T. Competitive Equilibrium ? Competitive refers to the fact that all consumers and firms are price-takers. ? Equilibrium refers to the state when the actions of all consumers and firms are consistent. ? Formal Definition : ? A competitive equilibrium is a set of endogenous quantities C , N s , N d , T and Y , and an endogenous real wage w , such that, given the exogenous variables G , z , and K , the following are satisfied: 1) C and N s solves the consumer's problem, max U( C, h- N s ) C, N s subject to C = w N s + ? - T and C ? 0 , N s ? 0. In other words, C and N s must satisfy the FOC, U 2 ( C, h- N s ) - wU 1 ( C, h- N s ) = 0. 2) N d solves the firm's problem given z, K and w. Thus the FOC is satisfied. ? ? w N K zF d ? , 2 3) Market-clearing conditions: – Labor market clearing ? N s = N d = N 4) Balanced Budget constraint: G = T . We have: Goods market clearing ? Y = C + G ? Combining the two FOCs, we have U 2 ( C, l ) - zF 2 (K, h - l ) U 1 ( C, l ) = 0. ? Since ? = zF( K, h - l ) - w N d and G = T, from the budget constraint C = zF(K, h - l ) - G. ? From these, we can solve for the equilibrium C and l. Graphical Illustrations Step