Yesterday I watched a presentation on the Science Channel of Steven
Hawkings "brief history of time" as part of the "Masters of the
Universe" series. It was an excellent show that is bound to stimulate
young minds to study quantum mechanics and astronomy. Then I thought
about this rationale for learning the AD/AS framework. The contrast is
striking.
Wouldn't it be wonderful if we could explain macroeconomics to students
in a way that would stimulate them to become interested in this field?
All this stuff about the aggregate expenditure function, the wealth
effect (inside and outside), the interest rate effect, varying the price
level, monetary equilibrium, must surely seem strange to the beginning
student, not to mention the teacher.
Some excerpts from the film are here:
http://science.discovery.com/videos/master-of-the-universe-stephen-hawking-quantum-mechanics.html
On 2/14/2011 1:59 PM, Richard Lipsey wrote:
> In response to Pat Gunning:
>
> "Forced" to do the derivations verbally because teachers will not
> accept elementary algebra as a mainline technique in first year
> courses Illustration: my UK text book An Introduction to Positive
> Economics was the leading text book in the UK from the mid 1960s to
> the early 1980s. Then I decided to develop the key macro relations in
> three ways: verbally, geometrically and finally algebraically. I
> immediately suffered a massive loss of adoptions. The market had
> spoken: it did not want algebra, even when it came after both an
> intuitive verbal and a geometric derivation. I had to decide between
> sticking with this treatment or being used. So I went back to verbal
> and geometric derivations only (There is no point in writing a text
> book that no one will use.)
>
> "Forced" to derive AD before money is introduced was too strong a
> word to use here. Again in my 1980s treatment I derived the AD curve
> after I had introduced money and so could do it in the standard way.
> But instructors overwhelming wanted to introduce AD before the Demand
> for and Supply of money were introduced . To do this, one has to allow
> the Aggregate Expenditure function to be shifted through a wealth
> (outside not inside wealth) effect, but not an interest rate effect,
> as the price level is varied. There is nothing misleading or incorrect
> in this. It is just that empirically the (outside) wealth effect is
> much less powerful than the interest rate effect. The latter is then
> introduced after dealing with money Demand and Supply. This is what
> most text books do, and then point out after this has been done that
> the interest rate effect is more important empirically than the wealth
> effect Ideally I would not introduce the AD and AS curves until after
> both the expenditure and monetary equilibrium conditions had been
> introduced, but this is not what instructors want. It is NOT a matter
> of right or wrong but a matter of pedagogy as long as one ends up with
> the verbal and geometric expression of the equations of the final
> model. As already mentioned, these issues are covered in much more
> detail in my essay on AD and AS in Blaug and Lloyd's new book Famous
> Diagrams and Figures in Economics
>
> .
> Richard G. Lipsey
> Phone: 778-279-1002
> URL: http://www.sfu.ca/~rlipsey
>
> WINNER OF THE 2006 SCHUMPETER PRIZE:
> ECONOMIC TRANSFORMATIONS:
> General Purpose Technologies and Long Term Economic Growth
> Richard G. Lipsey, Kenneth I. Carlaw, and Clifford T. Bekar
>
> Available now through all good bookshops, or direct from Oxford
> University Press at:
> URL: http://www.oup.co.uk/isbn/0-19-929089-X
>
> ----- Original Message ----- From: "Pat Gunning" <[log in to unmask]>
> To: <[log in to unmask]>
> Sent: Monday, February 14, 2011 8:48 AM
> Subject: Re: [SHOE] Wrt. aggregate supply and demand
>
>
>> Richard says that "first year textbooks are 'forced'" to derive an AD
>> curve in a way that does not correspond to how the curve is actually
>> (or "properly" or "logically") derived. He says that this is done for
>> "pedagogical convenience." Can we really take this seriously? Surely,
>> the purpose of deriving the AD curve in this way is misleading. The
>> student who goes on to study macroeconomics must "un-learn" this way.
>> And the student who does not go on is deceived into believing that
>> she has learned something that she has not learned at all.
>>
>> On 2/9/2011 4:39 PM, Richard Lipsey wrote:
>>> Robin Neil asks about the axes of the AD curve. The micro demand
>>> curve can be seen as a behavioral relation in which dependent and
>>> independent variables may be a valid distinction (although, as the
>>> long correspondence on this matter shows, it is a matter or how one
>>> interprets this type of curve). In contrast, the macro AD curve is a
>>> locus of equilibrium values for the price level (P) and real GDP
>>> (Y). It shows all the combinations of these two variables for which
>>> aggregate demand would be just enough to purchase that amount of
>>> real output IF it were produced. One can just as well say that,
>>> given Y, there is only one P the will do this job or, given P, there
>>> is only one Y that we do this job. So the distinction between
>>> independent and depended variables does not apply here.
>>> First year text books (including mine for Candida and the UK) are
>>> forced to derive an AD curve verbally and before money is
>>> introduced. This is best done by changing P exogenously and
>>> determining the equilibrium level of Y for each chosen P. But this
>>> is only for pedagogical convenience. If one is deriving the curve
>>> algebraically, one lays out the equations of a simple Keynesian
>>> model (1) desired aggregate expenditure (2) money demand (3) money
>>> supply and two equilibrium conditions (4 ) desired expenditure to
>>> equal total output and (5) the demand for money to equal its supply,
>>> and then substitutes these to obtain one AD curve equation relating
>>> P and Y without ever identifying P or Y as dependent or independent
>>> variables. This and related matters are discussed in much more
>>> detail in my essay on AD-AS in the new book by Mark Blaug and Peter
>>> Lloyd, "Famous Figures and Diagrams in Economics"
>>> .
>>> Richard G. Lipsey
>>> ----- Original Message -----
>>>
>>> *From:* Robin Neill <mailto:[log in to unmask]>
>>> *To:* [log in to unmask] <mailto:[log in to unmask]>
>>> *Sent:* Friday, February 04, 2011 6:05 AM
>>> *Subject:* Re: [SHOE] Wrt. aggregate supply and demand
>>>
>>> Serendipitously, this morning one of my students
>>> ask why the general level of prices was on the
>>> vertical axis and Real GDP on the horizontal axis.
>>>
>>> My text's explanation for the negative slope of the
>>> aggregate demand curve sets Real GDP as the
>>> dependent variable. Should it not then be on the
>>> vertical axis? Is not the same true of the
>>> short run aggregate supply curve?
>>>
>>> Anyone have an answer?
>>>
>>> I do not think that the analysis suffers from
>>> conventionally putting the general level of
>>> prices on the vertical axis.
>>>
>>>
>>> Robin Neill
>>>
>>
>> --
>> Pat Gunning
>> Professor of Economics
>> Melbourne, Florida
>> http://www.nomadpress.com/gunning/welcome.htm
>
>
--
Pat Gunning
Professor of Economics
Melbourne, Florida
http://www.nomadpress.com/gunning/welcome.htm
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