- Labour supply: marginal condition governing division of time between labour and leisure in each period. - leisure is a normal good: more leisure, less labour supply if more wealthy (i.e. if more lifetime resources) - intertemporal substitution stories (see MaCurdy; Lucas and Rapping): work more in periods when the wage is high. Firms: - produce and supply output. - demand capital and labour to produce output. e.g. higher productivity boosts input demand; higher input prices tend to decrease input demand. - link between productivity of capital and the interest rate (FK≡∂F/∂K) (r), i.e. FK-=r Capital accumulation: - reflects consumption and savings decisions of households and investment / capital demand of businesses. Response to shocks in these models: of the effects of shocks as working through “In general, we can think wealth and intertemporal substitution Romer p. 214 effects” - What shocks are typically examined? - Technology shocks the most common in the literature. - or same thing a shift in “technology shock” “productivity shock”: – the production function. - Also have government spending shocks in the Romer and Heijdra. - Shocks could be permanent or temporary. If temporary they may also differ in their persistence.
- Labour supply: marginal condition governing division of time between labour and leisure in each period. - leisure is a normal good: more leisure, less labour supply if more wealthy (i.e. if more lifetime resources) - intertemporal substitution stories (see MaCurdy; Lucas and Rapping): work more in periods when the wage is high. Firms: - produce and supply output. - demand capital and labour to produce output. e.g. higher productivity boosts input demand; higher input prices tend to decrease input demand. - link between productivity of capital (FK≡∂F/∂K) and the interest rate (r), i.e. FK-=r Capital accumulation: - reflects consumption and savings decisions of households and investment / capital demand of businesses. Response to shocks in these models: “In general, we can think of the effects of shocks as working through wealth and intertemporal substitution effects” Romer p. 214 - What shocks are typically examined? - Technology shocks the most common in the literature. - “technology shock” or “productivity shock”: same thing – a shift in the production function. - Also have government spending shocks in the Romer and Heijdra. - Shocks could be permanent or temporary. If temporary they may also differ in their persistence.