Real business cycle theory, Microeconomics

REAL BUSINESS CYCLE THEORY:

The parable that motivates this discussion originated with Edmund Phelps and invites you to think that all men (and women) are islands. They have perfect information about the prices of goods and services on their islands but cannot sample the prices on other islands except by rowing there, a costly activity. Consequently, they can only form estimates of the general price level, the average of all prices. Thus, an increase in the general price level will be misperceived as an increase in the price of goods on the island, a (small) subset and, therefore, sub optimal decisions about consumption, production, and investment will be taken. In the spirit of the earlier section, the following account in the next is drawn from the book: 

Barro, Robert, Macroeconomics, New York: John Wiley & Sons, Inc. 

Posted Date: 11/10/2012 6:53:14 AM | Location : United States







Related Discussions:- Real business cycle theory, Assignment Help, Ask Question on Real business cycle theory, Get Answer, Expert's Help, Real business cycle theory Discussions

Write discussion on Real business cycle theory
Your posts are moderated
Related Questions
Unions in a Competitive Market: Again, there a group of economists who will rely on the use of the competitive model to demonstrate the evils of unionization. The most regular anal

Joe Brown’s dairy operates in a perfectly competitive marketplace. Joe’s machinery costs $500 per day and is the only fixed input. His variable costs are comprised of the wages pai

hey, I just have a question on how to apply things like ATC and AVC in a problem. im just not too sure about what happens to the quantity of a particular good when asked. this is p

AS STUDENT OF ECONOMICS ELABORATE ON THE KALDOR-HISCKS COMPENSATION

Factors of Production Factors of production are the resources that are utilized to manufacture goods and services: 1. Natural resources: The things developed by acts of n

Chemical properties of p block elements

Monica consumes only goods A and B. Suppose that her marginal uility from consuming good A is equal to 1/Qa, and her marginal utility from consuming good B is 1/Qb. If the price of

explain main features of short run engineering cost theory

Under capitalism, most production is undertaken by private companies (of various forms), with the goal of generating a profit to the company's owners. Profit is obtained when compa

Determine The Rule of Divergence in General Though even if attention is confined to non-communist-ruled economies there still has been huge divergence in relative output per w