Quasi-Static Macroeconomic Systems

Jamsheed Shorish

Economics Working Papers from Department of Economics and Business Economics, Aarhus University

Abstract: This paper applies quasi-static analysis to a simple closed macroeconomy. It is shown that if the economy satisfies a conservation of income requirement, and the requirement that all equivalent investments generate the same rate of return (non- arbitrage), then there exists a state variable which measures the opportunity cost of moving from one macroeconomic equilibrium to another. This state variable is an economic constraint which measures the expenditure necessary to change equilibria. Central to this analysis is a definition of economic time, which is an invariant quantity with respect to the state variables used as a frame of reference.

Keywords: Quasi-static systems; thermodynamics; non-arbitrage; opportunity cost; conservative systems (search for similar items in EconPapers)
JEL-codes: B41 E10 (search for similar items in EconPapers)
Pages: 26
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Citations: View citations in EconPapers (5)

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