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Monetary Financed Government Debt in the Macro Economic Model

Class notes from Fall 2000 on government debt, monetary financing, and the macroeconomic model by Charles R. Plott from Caltech. Covers variables like income, consumption, investment, interest rate, price level, employment, and money demand.

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Monetary Financed Government Debt in the Macro Economic Model

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  1. LECTURE 5 MONETARY FINANCED GOVERNMENT DEBT

  2. THE MACRO ECONOMIC MODEL Introduction to Economics Class Notes Fall 2000 Charles R. Plott California Institute of Technology

  3. I a Spending I1 I1+a1 Y1 Y2 Y i i i i a Y M/P I I1 a1 MDT MDT Y M/P P P P P* Y M*/P* M/P W/P Y UNKNOWNS .Y income .C consumption .I investment .i interest rate .P price level .L employment .MD money demand .MDT transaction demand for money .MDS speculative demand for money .w nominal wages level GIVENS G Government spending X net exports M nominal money supply b marginal propensity to consume EQUATIONS .Y=C+I+G+X .C=a(i)+bY .I=I(i) .M/P = MD .MD=MDT+MDS .MDT = MDT(Y) .MDS = MDS(i) .DL(w/P)-SL(w/P)=0 .L=SL(w/P) .Y=F(L,..)

  4. EXERCISE #5 THERE IS AN INCREASE IN GOVERNMENT DEFICIT EXPENDITURES FINANCED BY THE FEDERAL RESERVE SYSTEM

  5. I a Spending I1 I1+a1 Y1 Y2 Y i i i i a Y M/P I I1 a1 MDT MDT Y M/P P P P P* Y M*/P* M/P W/P Y

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