Macroeconomia e Teoria Monetária (2 º Sem 2014/2015)

And the bonus will still aplply to the Recourse Phase.

According to Harrod, economic expansions are characterized by explosive paths of output until full-employment is reached. We started by arguing that Harrod's conclusion depends critically on his assumption that firms quickly adjust their capital stock to changes in output. Afterwards we investigated what happens if, by contrast, we make the more realistic assumption that firms adopt a 'wait and see attitude', making only gradual adjustments of their capital stock to changes in output.

We arrived at a model that predicts that "as the [economic] system progresses in an upward direction, the forces propelling it upwards at first gather force and have a cumulative effect on one another, but gradually lose strength until at a certain point [often still below full-employment] they tend to be replaced  by forces operating in the opposite direction." (Keynes, 1936, pp. 313-4). These conclusions are consistent with the detailed empirical study of the U.S. post-war economic cycles carried out by Harvey (JPKE, 2014).

Another conclusion of our model was that fiscal policy affects the economy well beyond the Keynesian multiplier. Indeed, the sort-term variation in output generated by the multiplier tends to lead to changes in capacity utilization, investment and output "with a cumulative effect on one another" that extend over periods of several years.

The aim of economic analysis "is not to provide a machine, or method of blind manipulation, which will furnish an infallible answer, but to provide ourselves with an organized and orderly method of thinking our particular problems…

In ordinary discourse, where we are not blindly manipulating but know all the time what we are doing and what the words mean, we can keep 'at the back of our heads' the necessary reserves and qualifications and the adjustments which we shall have to make later on, in a way in which we cannot keep lengthy partial differentials 'at the back' of several pages of algebra…

Too large a proportion of recent 'mathematical' economics are merely concoctions, as imprecise as the initial assumptions they rest on, which allow the author to lose sight of the complexities and interdependencies of the real world in a maze of pretentious and unhelpful symbols." 

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The second test will include a few T-F questions with justifications in a box with a very limited space (see the file posted in the section "other materials").

For this reason, you should bring a pencil so that, if neeeded, you can erase what you write at first and then improve your justification.

" Involuntary unemployment is not a fact or phenomenon which is the task of theorists to explain. It is, on the contrary, a theoretical construct that was introduced by Keynes to explain a genuine phenomenon: fluctutations in total employment."

TRANSLATION: total employment falls sharply in recessions because people become voluntarily unemployed - ie, they want to be unemployed - in those periods.

In case you don't know, Lucas is a Nobel prize-winner and the American Economic Review is the most prestigious academic publication in the field of Economics.