VeconLab Macroeconomics and Finance

  • Production: The Production and Gains from Trade program lets people discover the benefits of trade based on differences in comparative advantage, even if one trading partner has an absolute advantage in the production of both goods. This game can be used in discussion of production possibilities frontiers and opportunity cost.
  • Supply and Demand: The Call Market and Double Auction programs can be used to review the notions of supply and demand, perhaps using the price-floor option to stimulate a discussion of minimum wages (see the Micro Principles link).
  • Circular Flow: The Macro Markets program sets up a self-contained economy with fiat money. Participants are either workers (who sell labor and purchase goods) or firms (who purchase labor and sell goods). Frictions are introduced via Cash-in-advance constraints and some decentralization in the labor market. This program illustrates how the demand and supply of labor depend on the real wage. The program provides workers and firms with updates of an "economic report" that can be used to explain the measurement of unemployment, real output, and wage and price indices. Increases in fiat money can raise prices and affect real output in some cases.
  • Present Value and Asset Price Bubbles: The Limit Order Market program implements a stock market with two assets: cash that pays interest and shares that pay randomly determined dividends. The present value calculations implied by the interest rate cause the shares to have a flat fundamental value. Price bubbles are typically observed in this setting.
  • Financial Crisis: The Bank Run program puts participants in a world with two equilibria. Depositors earn high returns when their bank does not fail, but there is a second equilibrium that is bad for all (worse for those who do not withdraw in time). With multiple banks, random withdrawals that stress one bank can produce a panic that spreads to other banks, and a loss of confidence can make it more difficult to return to the good equilibirum, even after structural solutions are imposed.

    Vecon Lab - July 17, 2019