Macroeconomic models, Macroeconomics

Assignment Help:

Now we will analyse how macroeconomic variables fit together and present models which explain the main macroeconomic variables. 

Using these models we can, for instance, analyse what happens when government increases consumption, when central bank increases the target interest rate and when domestically produced goods do well in foreign markets. We can also understand significant observations of the economy like cyclical fluctuations in growth, correlation between unemployment and inflation and the relationship between interest rates and foreign exchange rates. 

Macroeconomics isn't an exact science like physics. No one knows exactly how the macroeconomic variables are related. In its place, there exist some models which try to explain various observations and relationships between macroeconomic variables. Unfortunately, not all of these models consistent - one model may predict that unemployment would fall if the central bank lowers target interest rate whereas another may claim that such a change won't affect unemployment. 

This type of problem is something you have to get used to and accept. Economics isn't a subject where you can perform an experiment to find out what is really 'true'. Observed phenomena may have different explanations in different models and different models will result in different predictions of macroeconomic variables. If you determine that 'An increase in x will lead to an increase in y' you really must not think of this as a property of the real world though rather as the property of a particular model. 

One model which is very popular in virtually all basic courses in macroeconomics all over the world is the so-called neo-classical synthesis. As the name suggests, this is a combination or a synthesis of two models, namely classical model and Keynesian model. In brief, the neo-classical synthesis claims that Keynesian model is correct in the short term whereas the classical model is correct in the long run.


Related Discussions:- Macroeconomic models

Calculate the overall efficiency and operating cost, A company is consideri...

A company is considering investing in power generation. It wants to setup a 1000 MW power generation system. The company hired you as a consultant to explore different options for

Explain the term- inventory investment, Explain the term- inventory investm...

Explain the term- inventory investment We would have a negative inventory investment whenever inventories decrease. By net investments we mean gross investments minus depreciat

Functions of money, Functions of Money During the course of history mo...

Functions of Money During the course of history money has taken various forms. In fact, there is no difficulty in identifying money but the problem is defining money. Economis

New equilibrium price also quantity, Take a look at the sugar market: US d...

Take a look at the sugar market: US demand: Q=60-2/3 P US domestic supply: Q=P Also, the US could import any quantity from world producers at (US$) 10/cents per lb a) In a sc

Calculate the duration of a par value bond with coupon rate, 1.  Calculate ...

1.  Calculate the duration of a par value bond with a coupon rate of 8% and a remaining time to maturity of 5 years. 2. On September 26, the spot price of gold was $320 per ounc

Define gross requirements and scheduled receipts, One unit of A is made up ...

One unit of A is made up of one unit of B and one unit of C. B is made of three units of D and one unit if F. C is composed of three units of B, one unit of D, and four units of E.

Differentiate between nominal rate and real interest rates, Differentiate b...

Differentiate between Nominal rate and real interest rates To distinguish the real interest rate from the "normal" interest rate, the latter is called the nominal interest rate

Determinants of long run prosperity rank, he questions posed are broad and ...

he questions posed are broad and open ended so be careful to allow yourself enough research and planning time. If you are completely on top of the material delivered in class, then

American households use a cell phone, It is reported that 16% of American h...

It is reported that 16% of American households use a cell phone exclusively for their telephone service. In a sample of eight households, find the probability that: A) None use a c

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd