Macro4Neoclassical Economics Review and Critique(宏

Lecture4NeoclassicalEconomics:ReviewandCritiqueMacroeconomicsI.NeoclassicalDemand-SupplyAnalysisThecoreofneoclassicaleconomicsisthedemand-supplyanalysis.Behindthedemand-supplyanalysis,itisthehouseholdandfirm’soptimizationdecision.I.NeoclassicalDemand-SupplyAnalysisTheHouseholdProblemGiventheoutputpricepi(i=1,2,…,n)andtheincomey,choosethedemandxidtomaximizesubjecttoThesolution:),...,,(21dddnxxxU1212ndddnpxpxpxy12(,,,,)idinxDypppI.NeoclassicalDemand-SupplyAnalysisTheHouseholdProblem(continued)Remark1:Inthisoptimizationproblem,theincomeyisassumedtobegiven.Ifonelooksattheneoclassicalgeneralequilibriumframework,theincomeshouldbedefinedaswherewjandlj(j=1,2,…,m)arethefactorpricesandfactorsupply.Hereljcouldberegardedasendowments.1212msssmywlwlwlLI.NeoclassicalDemand-SupplyAnalysisTheHouseholdProblem(continued):Remark2:Whenthehouseholdmakesthedecision,thepricesofoutputandfactor,pjandwj,areallassumedtobegivenregardlesswhethertheyareequilibriumpricesornot(problem?).I.NeoclassicalDemand-SupplyAnalysisTheFirm’sProblemGiventheprices,pjandwj,firmiwillchooseoutputsupplyxisandfactordemandljdtomaximizesubjecttotheproductionfunction1122()sdddiimmpxwlwlwl12(,,,)sdddimxflllI.NeoclassicalDemand-SupplyAnalysisTheFirm’sProblem(continued)Thesolution:Remark:Again,whenthefirmmakesthedecision,thepricesofoutputandfactor,pjandwj,areallassumedtobegivenregardlesswhethertheyareequilibriumpricesornot.12(,,,,)djjimldp12(,,,,)siiimxspII.FullConfidenceExpectationHypothesisThehypothesisoffull-confidenceexpectationNeoclassicalanalysisimpliesanagentbehaviorregardingtheirobservationtotheeconomy.Thisbehaviormaynamedas“full-confidenceexpectation”.Thehypothesisoffull-confidenceexpectation:Atthegivenprices,whetherequilibriumornot,theagenthasfullconfidencethathecansaleandbuyasmuchashewants.II.FullConfidenceExpectationHypothesisThehypothesisoffull-confidenceexpectation(continued)Remark1:Here“asmuchashewants”canberegardedastheoptimumquantityderivedfromtheoptimization.Inthefollowedfigure,weusefirm’ssupplyasanexampletoexpress“asmuchashewant”.II.FullConfidenceExpectationHypothesisThehypothesisoffull-confidenceexpectation(continued)II.FullConfidenceExpectationHypothesisThehypothesisoffull-confidenceexpectation(continued)Remark2:Suchfullconfidenceexpectationisexactlycontrastedto“theuncertainty”,whichiswhatKeynesalwaysemphasized.II.FullConfidenceExpectationHypothesisWhydoesneoclassicalanalysisimpliesthehypothesisoffullconfidenceexpectation?SimultaneityTheconnectionofvalidationbetweendemandandsupply.DesireversusrealizationRealizationviaTradingEquilibriumpriceversusnonequilibriumpriceNotionalversuseffectiveFormoredetail,seechapter3ofmybook.II.FullConfidenceExpectationHypothesisWalras’TradingProcessExistenceofanauctioneerTradingruleResult:eventually,equilibriumpricewillbequoted.Implication:thefull-confidenceexpectationcouldbevalidunderthistradingprocess.III.DemandandSupply,WhichShouldbetheFirst?Consideranagentwhocomestotheeconomy(ormarket)todemandandsupply(ortobuyandsale).Whichoneheshoulddothefirst?Supposetheagentwanttofirstdemand.Thentwoconstraintsseemstobeneeded:HehasenoughmoneytobuyfirstHehasfull-confidenceexpectation.III.DemandandSupply,WhichShouldbetheFirst?Iftheagentfeelsuncertainabouttheeconomy,heshallalwaysfirstengageinsupplyactivity.Remarksonthesupplyactivities:•gettingcontractsandorders,•waitingforinventorystocklowertocertainlevel,•amongothers.III.DemandandSupply,WhichShouldbetheFirst?ProblemIfeveryonewanttosupplyfirst,wherethedemandcomesfrom?Ifnoonedemandsfirst,theeconomywillnotwork.Thisproblemcannotberesolvedwithintheneoclassicaldemand-supplyframework.Weneedarevolutioninmethodology.ItwasKeyneswhocametosolvethisproblem,andthereforepeopleoftenregardhisanalysisasaKeynesianrevolution.