ECON130 Week 6: Markets and equilibrium

Hi all. As you will have noticed from the lecture videos there is a lot of content in this week – more than in any other single week. But it is because we are tying all the prior weeks together, and trying to make sure we are clear regarding what we are saying! The lecture slides can be found here and here.

Furthermore, we are focusing on a set of assumptions – so lets start with those:

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MPCs, multipliers, and our 1st year ECON model

I have been preparing my lecture content for macroeconomics later in the year, and have thought it would be a bit of fun to finish with the following: discuss why the initial marginal propensity to consumer and the final multiplier on any “initial expenditure impulse” need not be related to each other.

This is an issue that I’d cover after discussing Ricardian Equivalence, and think it matters given the increasing relevance of zero-lower bound economics for students in the current environment – and some of the discussion on NBER about multipliers, and HANK vs RANK (heterogeneous vs representative agent models) models of monetary policy.

Note: These non-standard models are cool, and much more “Keynesian” – but I think the more basic description below is important for keeping us humble about our ability to control things.

Now none of this will go into any detail on the more complex models (and ideas of expectations) – it will just ensure that we aren’t “losing money as an asset from our mental model” and should be read as such.

The circular flow (the description ECON141 is all about) describes the flow of funds around the economy, and the key thing is showing that if there is more dollars going around that flow in a period of time there is by definition more nominal activity – be it through higher prices or higher output. This insight can easily get lost in the discussion of individual channels during the course.

Happy with thoughts below – this is likely to be a non-assessed topic for eager students.

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ECON130 Week 5: Producer theory II

Today is a short post – there is just a key thing I want you to remember about a profit maximising firm. [Lecturer slides here and here]

Marginal Revenue = Marginal Cost

Marginal Revenue = Marginal Cost

Marginal Revenue = Marginal Cost

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Does monetary policy need to respond to the surge in inflation during pandemic?

Inflation went up to 2.5% in the March quarter, its highest rate since 2011. This was a fair amount above expectations, with the RBNZ expecting a 2.2% rate. They were not alone with private sector forecasters also expecting weaker inflation outcomes. 

This raised two questions from me:

  1. Is this evidence that COVID was a supply shock more than a demand shock?  
  2. And does it mean that monetary policy should respond? 

I want to think about the later point in this post – as the first question will get answered as we work through it.

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ECON130 Week 4: Producer Theory

Hi everyone.

My apologies that we can’t meet in person anymore – as the university is now running classes online due to the COVID-19 quarantine. You will have seen that the lectures are already online – feel free to watch them when you can. Lecture 7 slides are here and Lecture 8 slides are here.

This week we are switching from thinking about consumers to thinking about producers. Instead of asking why someone may purchase a product, or select a set of products from an available set, we are asking about the incentive to sell those products.

As is the case with consumer theory we leave prices fixed for now so we can focus on where the scarcity is and what incentives the producer has.

This week we focused solely on costs – lets talk a bit more about those. Specifically I want to summarise some of the ideas we covered in a different way (starting at the end of the 8th lecture rather than the start of the 7th) to hopefully help tie everything together.

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Have supermarket prices shot up? Evidence from the Stats NZ data

I have been hearing anecdotes from my friends in Europe that prices in supermarkets have increased since the last couple of months. Interested I had a look online and found a number of articles outlining this around the world.

According to the media, NZ shoppers have faced this as well. 

“Some customers have taken to social media to complain that prices of items like soap, meat and fresh veggies have increased sharply.”

However, supermarkets kept denying the fact. It’s hard to judge the case from my experience, as Matt and I were lazy and were primarily eating outside before the lockdown. However, Stats NZ provides data here – so let’s look at the latest release on the Food price index to figure out whether the customers are right.

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