Category Archives: Microeconomic Theory

The Fed and American Manufacturing

President-elect Trump’s success in the rust belt has drawn the nation’s attention the hardships of American manufacturing workers. While the causes of this are many, I would like to highlight an important role the Federal Reserve has played in their … Continue reading

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On the Necessary Conditions for Rational Bubbles

“Tirole  (1982) has shown that bubbles cannot exist in a model with a finite number of infinite-lived rational agents…. “Tirole (1985) has studied the possibility of bubbles within the Diamond (1965) overlapping generations model. In this model there is an infinite … Continue reading

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Income Effects and Gas Prices

This is a neat result that relates income effects to price changes on goods with inelastic demand. The example I have in mind is why an increase in gas prices feels like a reduction in income than an increase in … Continue reading

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The Effects of Stimulus in Keynesian and Neoclassical Models

Let us consider the effects of an increase in government spending and a balanced budget . The most elementary Keynesian model consists of two equations: Y = C + I + G C = c0 + c(Y–T) Here Y is … Continue reading

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Aggregate Goods and Substitutability

Are all aggregate goods complements or substitutes? Ordinarily, aggregate goods are weak substitutes. Let’s think about how goods are aggregated. The natural categories for aggregate goods are food, clothing, housing, health care, etc. To construct these aggregates, you would first … Continue reading

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