ECON 1002 (1 Viewer)

[sarevok]

oh well.. it does help us study for our exams... [a bit neway]

my tutor said that there is a reason why exam and assignment so close together...atta's assignment questions are usually similar to what you will find in the exam

the accelerator theory says that the amount of investment will depend on the rate of change in y. the higher expected output is, the more business' will invest. so I is determined by v*change in y, where v is the desired captial/output ratio.

 

[011]

my tutor said that there is a reason why exam and assignment so close together...atta's assignment questions are usually similar to what you will find in the exam

the accelerator theory says that the amount of investment will depend on the rate of change in y. the higher expected output is, the more business' will invest. so I is determined by v*change in y, where v is the desired captial/output ratio.

Now is that expected output for the next year?
The accelerator equation implies that investment in year A is dependant on growth from the year before (A-1) to this year, implying more that its on observed rather than expected growth.

Also why in Q3 would the press say differently to economic theory? Does it have to do with people investing how they like rather than follwoing interest rates?

 

[sarevok]

... its on observed rather than expected growth.

i see what you mean, but the lecture notes explicitly says its based on expected growth :S

Also why in Q3 would the press say differently to economic theory? Does it have to do with people investing how they like rather than follwoing interest rates?

well q3 refers to consumption..maybe something to do with ca and b changing..or perhaps fisher equation?

 

[011]

i see what you mean, but the lecture notes explicitly says its based on expected growth :S

Yeah i know, its weird...dont know what to think of that but the equation provides pretty infallible proof!

well q3 refers to consumption..maybe something to do with ca and b changing..or perhaps fisher equation?

True it does, but C(a) + bY is consumption as related to output - interest rates are outside this model. Also, the fisher equation concerns itself with the relationship between interest rates and inflation. So neither deals with the consumption-interest rate relationship.

I wonder whether the accelerator theory of mood swings applies to why people may consume a lot at high interest rates anyway?? What do you think?

 

[sarevok]

Also, the fisher equation concerns itself with the relationship between interest rates and inflation.

mmm..what i mean is, the article may be referring to nominal interest rates, so perhaps higher inflation is the cause of the rise in i referred to in the article, but people are only concerned with the real interest rate, so may still be consuming more. also, it is slide 17 of lecture 9 that made me think of autonomous consumption and its effect on consumption at high interest rates...tho perhaps you're right and this is not the appropriate model to use

also, we've covered the accelerator on investment, and not for consumption but.... and that is relating consumption to output and not interest rate like using the ca + by model...

any thoughts on how v is related to real wages?

 

[011]

my tutor said that there is a reason why exam and assignment so close together...atta's assignment questions are usually similar to what you will find in the exam

the accelerator theory says that the amount of investment will depend on the rate of change in y. the higher expected output is, the more business' will invest. so I is determined by v*change in y, where v is the desired captial/output ratio.

You might be onto something with the nominal rates actually. But when you think about it, investment (for consumption) is not much different to consumption in the interest rate models.

You said here v = k/y, so that has to imply that k has some relationship to wages. That's difficult, because L (labour) should be the only variable related to wages. How about the production function, do you think thats relevant? I cant make the last link between k/y and wages.

 

[sarevok]

But when you think about it, investment (for consumption) is not much different to consumption in the interest rate models.

you have a point. but isn't this type of accelerator theory already applied in the ca + bY model? because we know that b increase as income/output, or at least perception of change in income, rises.

You said here v = k/y, so that has to imply that k has some relationship to wages. That's difficult, because L (labour) should be the only variable related to wages. How about the production function, do you think thats relevant? I cant make the last link between k/y and wages.

i know, im finding the link extremely difficult. isnt capital related to real wages through the solow economic growth model? i remember in tutes when we said k increases, using the model, the real wage will increase.

 

[011]

you have a point. but isn't this type of accelerator theory already applied in the ca + bY model? because we know that b increase as income/output, or at least perception of change in income, rises.

Yes, but the perception issue you mention may not be taken into account with simply Y, or bY.

i know, im finding the link extremely difficult. isnt capital related to real wages through the solow economic growth model? i remember in tutes when we said k increases, using the model, the real wage will increase.

Ok well with the solow model capital increase can only be done with an investment increase. Still that doesnt quite get to wages. :S
Anything related to mpl? Problem is thats product of LABOUR and we're dealing with capital. :|

 

[sarevok]

Ok well with the solow model capital increase can only be done with an investment increase. Still that doesnt quite get to wages. :S
Anything related to mpl? Problem is thats product of LABOUR and we're dealing with capital. :|

wont greater capital per worker increase the mpl?
the only other thing i can think of is that perhaps the higher the real wage, the greater firms will invest, because capital is the less expensive alternative to increase output. but that has no relation to anything in lectures, and contradicts the solow model

me = stumped

 

[011]

wont greater capital per worker increase the mpl?
the only other thing i can think of is that perhaps the higher the real wage, the greater firms will invest, because capital is the less expensive alternative to increase output. but that has no relation to anything in lectures, and contradicts the solow model

me = stumped

Yeh thats true with the other thing, just because firms will hire less as real wage goes up, doesnt necessarily imply they will go to invest. Or does it...? *scratches head* - and how does it contradict solow? to me it just reiterates the link between investment and capital.

 

[sarevok]

and how does it contradict solow? to me it just reiterates the link between investment and capital.

as investment goes up capital stock increases (obviously)...solow says this leads to higher productivity and higher mpl and greater real wages. i got this impression anyway from the answer to a) in tutorial 4...

 

[011]

as investment goes up capital stock increases (obviously)...solow says this leads to higher productivity and higher mpl and greater real wages. i got this impression anyway from the answer to a) in tutorial 4...

I thought it meant it just shifts capital stock, whereas technology change increases productivity. I think the solution lies in what you said still, but im off to bed...do notify of any developments!

 

[sarevok]

well, it doesnt shift productivity like technology. but look at, say, slide slide 21 of lecture 6. you can see that as capital (and investment) increases, there is a movement along the productivity curve.
hmm..and a high steady state of capital means high output. and high output due to high steady state capital stock, with no change in the amount of labour, or technology, means higher marginal product of labour.

anwyay, perhaps i'll come up with some better ideas after sleeping on it

 

[kow_dude]

Out of topic... What's the difference between Commerce and Commerce Lib Studies sarevok?

 

[Rorix]

you guys need to consider 'what would make investors invest more for each per unit increase in income'. That is effectively what the multiplier is.

 

[011]

Is the accelerator Keynesian anyway?

 

[sarevok]

Out of topic... What's the difference between Commerce and Commerce Lib Studies sarevok?

no compulsory units bar one communications units, msut do 24cp from arts faculty, 12 from sciences. 4 year program. straight commerce > commerce lib. studies imo

you guys need to consider 'what would make investors invest more for each per unit increase in income'.

hmmm...atta seems to relate the accelerator theory of investment to animal spirtis, so perhaps it has something to dow ith that

 

[xiao1985]

@brogan: yeh i did that too... we were both stupid =p

@ the two smart pplz who are having a debate on how to do q2a) **** i hate that q... ><
i got v = 1-b somehow at the end... where b is the MPC

ok firstly, does atta mean change in investment = v* [ change in Y]?!
i mean, u can't really have negative investment?!

ok i start with Y = C + S (assume no tax)
also C = Ca + bY

hence Y = Ca + bY + S
assume closed economy, hence S = I... so change in Y = (Ca + bY + I) - (Ca + bY' + I')
= b (change in Y) + (change in I)

sub into change in I = v ( change in Y)
change in I = b v(change in Y) + v(Change in I)
change in I = b Change in I + v Change in I

hence 1 - b = v

not so sure how to relate it to average wage tho...
btw if L = number of labour
can we say that Y = W * L?!

 

[011]

@brogan: yeh i did that too... we were both stupid =p

@ the two smart pplz who are having a debate on how to do q2a) **** i hate that q... ><
i got v = 1-b somehow at the end... where b is the MPC

ok firstly, does atta mean change in investment = v* [ change in Y]?!
i mean, u can't really have negative investment?!

ok i start with Y = C + S (assume no tax)
also C = Ca + bY

hence Y = Ca + bY + S
assume closed economy, hence S = I... so change in Y = (Ca + bY + I) - (Ca + bY' + I')
= b (change in Y) + (change in I)

sub into change in I = v ( change in Y)
change in I = b v(change in Y) + v(Change in I)
change in I = b Change in I + v Change in I

hence 1 - b = v

not so sure how to relate it to average wage tho...
btw if L = number of labour
can we say that Y = W * L?!

Hahah I'm not sure I understand your maths there. Also Y is definitaly not W*L, remember the function Y = F(K,L,T) - there's more than the labour aspect to ourput. You seem to make a little too many assumptions so as to make the general logic shaky (ie closed economy).

I give up on the very last part 4 d- what is the DAMN puzzle? Is it to do with national saving or what? I'm looking at the data over and over again and I still cant explain anything about it.

 

[xiao1985]

oh yeh Y = f ( l, t, k) damnit, how can i forget that...

but then, if all labours who works in the economy is gettin an income of W, won't GDP be W L?

edit: i thnk atta said s th along the lines like " and the co ef" is actulaly real wages '"

or s th...