National Product and the Dynamic Properties of the Simple Model

Abstract

Equations (3.26) – (3.28) above depict the household sector’s demand functions for commodities, currency and equity shares. Equation (3.29) portrays its supply of labor function. The business sector’s price-setting functions for labor (w_t+1), equity shares (pⁿ _t) and commodities (p^c _t) are provided by expressions (4.39), (4.41) and (4.44) respectively. The remaining equations in the set numbered (4.37) – (4.45) represent the business sector’s desired levels of labor (current hours and future employees), currency, current production, (real) sales and current dividends. These equations are combined in the present chapter to form a simple model of national income and product. To complete this model, the actual end-of-period stocks and the actual quantities traded also must be specified. These issues will be addressed before presenting the entire model.