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xls

Introduction: Screen 1

Welcome to Lab 18 on equilibrium systems. This lab presents yet another application
of the Economic Approach as applied to equilibrium models.

The main purpose is to review the lessons we've learned and to practice our Excel
skills. There's really nothing new here, just another example of how economists
analyze equilibrium systems. At the end of this lab, you will have three examples to
refer to concerning equilibrium models:
1) The Profit Equilibration Model
2) The Keynesian Macro Model
3) The Rate of Return Equilibrium Model

As you worked through the chapters on optimization, you reached a scary point where
we weaned you from the structure of the earlier chapters. This chapter continues that
teaching strategy. YOU are in control of the workbook--it's time to leave the nest and
fly on your own! The more open-ended structure will give you an opportunity to
exercise your skills in creating sheets and finding answers from "scratch." We will
continue to provide some guidance and offer ocassional hints and suggestions.

Good luck!!! Click on the Q&A sheet tab to begin

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Q&A: Screen 1 Q&A: Screen 2

Before you begin, make sure to read the accompanying C18Lab.pdf file. It provides an Part 1) Finding the Equilib
overall view of equilibrium models and supporting explanation of the particular rate of
return model analyzed here. We can use Excel to solve e
i) Tables and graphs
Part 1) Finding the Equilibrium Solution ii) Solver

Q1: The cells below (scroll down to row 35) can be used to find and show the We have used graphs and ta
equilibrium solution. Notice how some cells have defined names. Use these names
in cell formulas to make your work easier. Q3: Now, use Solver to fin
below. When you are finish
Q2: When you have found the equilibrium solution, in the space below write the
equilibrium values of Rc and Wage Diff in a text box and draw two graphs that
depict the equilibrium solution. When you are finished, hit the Done button to move
to the next screen.

WageDiff Rc Ra ExcessRc
0% -20% 10%
1% -18% 10%
2% -16% 10%
Ra 10% 3% -14% 10%

m 2 4% -12% 10%

b -20% 5% -10% 10%

6% -8% 10%
7% -6% 10%
8% -4% 10%
9% -2% 10%
10% 0% 10%
11% 2% 10%
12% 4% 10%

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13% 6% 10%
14% 8% 10%
15% 10% 10%
16% 12% 10%
17% 14% 10%
18% 16% 10%
19% 18% 10%
20% 20% 10%

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Q&A: Screen 2 Q&A: Screen 3

Part 1) Finding the Equilibrium Solution, continued Let's assume that WageDiff over time
function:
We can use Excel to solve equilibrium problems in two ways: WageDiff(t+1) = WageD
i) Tables and graphs where ChangeWageDiff(t+1) =
ii) Solver
Notice how the equilbration process d
We have used graphs and tables to locate the equilibrium solution. The key to the equilibration process l
we made zeta < 0. Do you know why?
Q3: Now, use Solver to find the equilibrium value of WageDiff. Do your work
below. When you are finished, hit the Done button to move to the next screen. Q4:
(a) Fill in the table provided below fo
(b) Draw a phase diagram based on
(c) In a text box next to the phase diag
oscillatory and non-oscillatory conver
containing the value of zeta. When yo
the next screen.

Time WageDiff
Period (t)
0 5%
1
2
3
4
5
6

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7
8
9
10
11
12

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Screen 3 Q&A: Screen 4

sume that WageDiff over time is determined according to the following If we solve the General version of the Rate of R
n: following reduced form:
WageDiff(t+1) = WageDiff(t) + ChangeWageDiff(t+1)
re ChangeWageDiff(t+1) = zeta*ExcessRc(t)
Ra -
how the equilbration process describes the behavior of the endogenous variable. WageDiffe =
y to the equilibration process lies in the adjustment parameter, zeta. Notice that m
e zeta < 0. Do you know why?

in the table provided below for 12 time periods.

Let's explore the responsiveness of the equilibri
w a phase diagram based on the table.
text box next to the phase diagram, provide the ranges of zeta for the cases of
Q5: In a text box below, use calculus to show h
ory and non-oscillatory convergence. Note that we've named the cell
WageDiff varies as Ra changes. Comment on
ng the value of zeta. When you are finished, hit the Done button to move to
ing WageDiff=ƒ(Ra).
t screen.
Q6: Then, use Excel's Solver and the Compar
same question. In the Comparative Statics resu
WageDiff from Ra=10% to 11%.

Q7: A LAST QUESTION FOR YOU (Put answ

Do the calculus (MRF) and Excel (MAC) me
answers to the question of how equilibrium W
why not?

slope of
zeta -0.1 phase line
Change WageDiff Slope +1
Rc ExcessRc WageDiff (t+1) Line

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eneral version of the Rate of Return Equilibrium Model, we get the

d form:

Ra - b
WageDiffe =
m

responsiveness of the equilibrium value of WageDiff as Ra changes.

below, use calculus to show how the equilibrium value of

as Ra changes. Comment on the sign and linearity of

xcel's Solver and the Comparative Statics Wizard to answer the

n the Comparative Statics results sheet, find the Ra elasticity of
Ra=10% to 11%.

ESTION FOR YOU (Put answer in a text box below):

MRF) and Excel (MAC) methods yield exactly equivalent
uestion of how equilibrium WageDiff varies with Ra? Why or

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