ECO325H1 Lecture Notes - Lecture 11: Perfect Competition, Ricardian Equivalence, Business Cycle
Document Summary
Fluctuations do not exhibit any simple regular or cyclical pattern. Fluctuations are distributed very unevenly over components of output (c+i+g+nx) Consumers like to smooth consumption over time, which means savings is first to take hit when there is a shock. There are no large asymmetries between rises and falls in output but there are asymmetries in timing. In a recession, real gdp, employment, weekly hours in manufacturing, interest rates, and inflation typically fall. Declines in employment and hours are generally smaller than the fall in output. A competitive model without externalities, asymmetric information, missing markets, or other imperfections. Output is divided between consumption and investment and government purchases. Government purchases are financed by lump sum taxes. Since households are infinitely lived and there are no capital market imperfections, ricardian equivalence can hold. Discrete time version of ramsey cass koopman model. Firms produce using production function is knowledge/technology at time t. Is amount of labor hired at time t.
