Category Teaching
Keynesian Cross as simultaneous moves symmetric Nash equilibrium
Let there be two players. The apple producer buys bananas from the banana producer; and the banana producer buys apples from the apple producer. Each must place his order for how much fruit he wants to buy before observing the other's order. Each player's action depends on his expectation of the other player's action. The […]
Teaching, OLG models, and the phenomenology of perception
When we teach students economics, we sometimes use numerical examples to help them understand general principles. Sometimes we make them work through those numerical examples by themselves, as an assignment. It's the only way they will really get it, and see what's really going on. But once they get it, they don't need the numbers […]
Money as closed-end mutual fund
[I don't think this is very original, but it's a fun and instructive metaphor to play with. The most important lesson is the way the metaphor fails.] Suppose I start a closed-end mutual fund. (Brits call it an "investment trust".) I issue shares, and use the proceeds to buy assets like bonds and stocks. Shares […]
If a central bank wants to shrink, it must threaten to grow (autographed edition)
[Nothing great or original here, except maybe the metaphor. It's supposed to be a simple teaching post.] Zimbabwe is only the most extreme recent example of this general rule; the central bank threatened to grow extremely large, and this caused it to shrink extremely small. The Swiss National Bank is another recent example, at the […]
Does monopoly power cause inflation? (1968 and all that)
Here's a question for you: Suppose there is a permanent increase in monopoly power across the economy (either firms having more monopoly power in output markets, or unions having more monopoly power in labour markets). Would that permanent increase in monopoly power cause a permanent increase in the inflation rate? Most economists today would answer […]
Temporary vs permanent elasticities
This is (supposed to be) a simple "teaching" post. There should be nothing new here. Just a newish way of presenting old stuff. The more interest-elastic the demand for money, the more important is the distinction between temporary vs permanent changes in the money supply.
The desired stock of savings
Isn't a concept we talk about much in macro. Which is a bit weird, when you think about it. And it's always good to examine the way we think about things, and teach those things. We talk about households' desired flow of saving, and firms' desired flow of investment, and we talk about the actual […]
Inventories of goods and money (I=S again)
Think waaaay back, to the Keynesian Cross model of the traditional first-year textbook: 1. Desired expenditure Yd is an increasing function of income (aka production) Y. So Yd = a + bY where a > 0 and 0 < b < 1 2. In equilibrium, Yd = Y What is the process that brings the […]
The orthodox New Keynesian position on liquidity preference and loanable funds
I am not an orthodox New Keynesian macroeconomist (ONKM), but I can pretend to be one. Q: What determines the rate of interest? ONKM: "The central bank sets the rate of interest." Discussion: the above answer is a pure liquidity preference theory of the rate of interest. By having a perfectly elastic money supply curve, […]
Suppose that printing money were irreversible
Suppose, just suppose, that you believed that printing money was irreversible, or just very hard to reverse. So central banks could increase the supply of base money by printing money, but could not (or could not easily) reduce the supply of base money again by burning money. And suppose you knew that central banks had […]
Worthwhile Canadian Initiative 
Recent Comments