An Introduction to Economic Dynamics

by Ronald Shone

• ISBN13: 9780521800341
• ISBN10: 052180034X
• Format: Hardcover
• Copyright: 2001-10-08
• Publisher: Cambridge University Press

Summary

An examples-driven treatment of introductory economic dynamics for students with a basic familiarity with spreadsheets. Shone approaches the subject with the belief that true understanding of a subject can only be achieved by students themselves setting out a problem and manipulating it experimentally. Although all economics students now have access to spreadsheets, they are often used for little more than graphing economic data. This book encourages students to go several stages further and set up and investigate simple dynamic models. The book presents the essentials of macro and micro economic dynamics, including: demand and supply dynamics, Keynesian dynamics, IS-LM, Inflation-unemployment, dynamics of the firm, rational expectations and saddle points, fiscal dynamics and the Maastricht Treaty and Chaos theory. The Book contains 50 exercises. The support website contains an additional 100 questions for students and 100 for lecturers. Visit www.cambridge.org/resources/economics

Table of Contents

List of tables and boxes	viii
Preface	ix
Introduction
Definitions and concepts	1	(2)
Dynamic models	3	(2)
Deterministic dynamical models	5	(1)
Dynamical systems on a spreadsheet	6	(3)
Experimentation	9	(1)
Difference equations	10	(2)
Attractors and repellors	12	(2)
Nonlinear dynamical systems	14	(6)
Continuous models	20	(2)
Continuous differential equations on a spreadsheet	22	(3)
Conclusion	25	(2)
Exercises	25	(2)
Demand and supply dynamics
Beyond the textbook	27	(4)
The linear cobweb model	31	(3)
Experimentation	34	(1)
Different expectations	35	(2)
The Goodwin model of expectations	37	(2)
Nonlinear cobwebs	39	(1)
Ceilings and floors	40	(3)
Cobwebs in interrelated markets	43	(5)
Exercises	45	(3)
Simple Keynesian dynamics
The Keynesian-cross diagram	48	(2)
Some simple dynamics	50	(2)
Experimentation: 1	52	(2)
The dynamic multiplier	54	(2)
A dynamic model with taxes	56	(2)
Experimentation: 2	58	(2)
The multiplier-accelerator model	60	(3)
Introduction of net exports	63	(3)
Experimentation: 3	66	(3)
Exercises	67	(2)
Constructing trajectories in the phase plane
Trajectories and fixed points	69	(3)
Isoclines and vector forces: continuous models	72	(2)
Constructing continuous trajectories with a spreadsheet	74	(2)
Isoclines and vector forces: discrete models	76	(1)
Constructing discrete trajectories with a spreadsheet	77	(1)
A cautionary note	78	(1)
A variety of trajectories	79	(5)
Limit cycles	84	(1)
Lorenz curves and strange attractors	85	(2)
Conclusion	87	(4)
Exercises	89	(2)
IS-LM dynamics
The static model	91	(3)
Instantaneous money market adjustment	94	(4)
A continuous model	98	(3)
Continuous IS-LM on a spreadsheet	101	(4)
A discrete version of the IS-LM model	105	(2)
Interest rate ceiling	107	(1)
Conclusion	108	(2)
Exercises	108	(2)
Inflation-unemployment dynamics
The Phillips curve	110	(1)
A simple macroeconomic model of inflation	111	(4)
The dynamics of the simple model	115	(2)
Dynamic model with positive inflation	117	(6)
A change in the money supply	123	(1)
A change in the natural level of unemployment	124	(1)
Continuous model	125	(2)
Conclusion	127	(3)
Exercises	128	(2)
Dynamics of the firm
Introduction	130	(1)
Monopoly and advertising	130	(3)
Advertising model: discrete version	133	(2)
Diffusion models	135	(3)
Static theory of oligopoly	138	(2)
Discrete dynamic model with output adjusting instantaneously	140	(2)
Dynamic oligopoly with three firms	142	(1)
Partial-adjustment duopoly model	143	(6)
Exercises	146	(3)
Saddles and rational expectations
What are saddles?	149	(1)
Two examples	150	(7)
The Dornbusch model under perfect foresight	157	(4)
A numerical example	161	(3)
A rise in the money supply	164	(2)
Announcement effects	166	(4)
Discrete systems exhibiting saddle solutions	170	(4)
Exercises	172	(2)
Fiscal dynamics and the Maastricht Treaty
Budgetary concepts	174	(2)
Budget dynamics with no inflation and no monetary financing	176	(4)
A numerical example	180	(1)
Budget dynamics with inflation and money plus bond financing	181	(3)
Some numerical examples	184	(4)
Budget criteria of the Maastricht Treaty	188	(3)
Some final observations on the Maastricht Treaty	191	(3)
Exercises	192	(2)
A little bit of chaos
Introduction	194	(1)
Defining bifurcations	195	(3)
Saddle-node bifurcation	198	(2)
A transcritical bifurcation and a pitchfork bifurcation	200	(2)
The logistic equation, periodic-doubling bifurcations and chaos	202	(5)
Sensitivity to initial conditions and unusual patterns	207	(2)
Van der Pol equations and a Hopf bifurcation	209	(2)
Lorenz equations again	211	(4)
Exercises	213	(2)
Brief answers to selected exercises	215	(5)
Further reading	220	(1)
Index	221