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Intermediate Macroeconomics


1. Consumption and Leisure Model


In this section, we begin to develop a micro-founded model of the macroeconomy. We begin with a model of utility maximizing choices for consumption and leisure. We consider a single consumer, but imagine he or she is a representative consumer, so that his or her consumption decisions coincide with aggregate consumption (i.e. total consumption in the macroeconomy). Aggregate consumption is part of aggregate demand, and a major expenditure component of real GDP. Leisure decisions determine labor supply decisions, which coincides with the aggregate level of labor supply.


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Utility: Definition and Assumptions

Utility is defined as satisfaction that consumers derive from consuming goods, services, and even leisure. In this pencast, we further explore the concept of utility and discuss some common assumptions. [Play Pencast]


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Utility and Indifference Curves

Indifference curves are graphical representations of bundles of goods for which consumers are indifference between. That is, quantities for two difference goods (for a two-dimensional indifference curve) that yield the same level of utility. We will use this concept in subsequent pencasts to derive consumers' utility maximizing choices for consumption and leisure. In this pencast, we are introduced to indifference curves and explore some of their properties. [Play Pencast]


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Introduction to the Consumption / Leisure Model

In this pencast we are introduced to the consumption and leisure model. Consumers derive utility from leisure, which is time not working, and consumption a single type of consumption good. We define what consumers value, and explore is some more depth consumers' budget constraint. [Play Pencast]


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Utility Maximization in the Consumption / Leisure Model

In this pencast we derive consumers' optimal choices for consumption and leisure by combining what we know about consumers' utility and indifference curves and what we know about their budget constraint. [Play Pencast]


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Consumption / Leisure Model: Change in Non-Wage Income

In this pencast we use the consumption and leisure model to determine how consumers' optimal choices for consumption and leisure change when they experience a change in non-wage income.[Play Pencast]


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Consumption / Leisure Model: Change in Wage

In this pencast we use the consumption and leisure model to determine how consumers' optimal choices for consumption and leisure change when they experience an increase in their wage.[Play Pencast]


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Graphical Illustrate of Income and Substitution Effects

The changes in optimal choices for consumption and leisure from an increase in wage (described in the pencast above) were the combination of two separate effects: the income effect and the substitution effect. In this pencast, we illustrate each effect separately. [Play Pencast]


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