Vecon Lab Macro Circular Flow Markets: Introduction

This program sets up a closed economy with markets for labor and goods. Participants are either workers or firms, who are endowed with fiat money. Firms begin by posting wages and maximum hire quantities simultaneously (subject to cash-in-advance constraints), and workers each choose which firm to visit. Jobs are allocated randomly if there is excess supply at a firm, and hired workers are paid the posted wage. Then firms post prices and maximum sales quantities (subject to production-in-advance constraints), and workers (who are also consumers) decide which firm to visit, with excess demand for each firm being allocated randomly. Frictions are induced by the "in advance" constraints and the one-visit-per-period rule. The instructor can inject money to shock the system.


Vecon Lab - May 19, 2019