Lecture 1 Flashcards
(6 cards)
1
Q
Economic model
A
- An economic model is a mathematical representation of a hypothetical world that we use to study economic phenomena
- A model is useful if it has good predictive power
2
Q
Parameter
A
An input that is fixed over time, except when the model builder changes it for an experiment
3
Q
Exogenous variables
A
- An input that can change over time but determined ahead of time by the model builder
- Exogenous = outside of the model
4
Q
Endogenous variables
A
- An outcome of the model something that is explained by the model
- Endogenous = within the model
5
Q
Market clearing
A
An assumption that prices are flexible and adjust to equate supply and demand
6
Q
Sticky prices
A
They adjust only sluggishly in response to supply/demand imbalances
