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
Time Value of Money The time value of money is the price or value placed on time. It is commonly thought of as the opportunity cost related with a particular investment. Money

A recent national survey found that high school students watched an average (mean) of 7.2 DVDs per month with a population standard deviation of .90. A random sample of 35 college

Dynamic Changes in Costs: The Learning Curve *  The learning curve measures impact of worker's experience on costs of production. *  It describes relationship between a firm

Supply of Basic Industrial Inputs: Allowing their duty-free imports by exporters would require an elaborate machinery of customs and import licensing to ensure that the impor


A firms total cost function is TC=0.0006*X^3-0.086*X^2+4.8*X+25 and its total revenue function is TR=2.5*X find its profit function

If the Bank of England wanted to discourage investment spending and reduce aggregate demand, it could? A. reduce the required reserve ratio B. sells securities on the open m

Labour Extraction: Most employees under capitalism are paid according to time they spend at work. Though employers then face a challenge to extract genuine labour effort from their

Energies of the diametric molecules of a gas, chemistry assignments The analysis basis for treating these different types of motion can be seen by describing the motion of a di

determination of rent