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Employment and Prices in a Simple Macroeconomy

Author

Listed:
  • Jacob K. Goeree
  • Charles A. Holt

Abstract

This exercise sets up interlinked labor and goods markets in a classroom macroeconomy. Students with worker roles are endowed with labor that can be consumed or sold to firms that post wages, purchase labor, and produce goods that can be either consumed or sold to workers. The money from sales is used by firms to purchase labor in the next period. Complicated record keeping is avoided by using ordinary playing cards to represent money and goods. The exercise can stimulate a discussion of potential output, unemployment, and the role of money in determining wages and prices. Use: This experiment can be used in introductory macroeconomics classes to teach concepts of the circular flow, real and money wages, unemployment, and labor market equilibrium and in intermediate classes to consider Keynesian and quantity theories. Time required: Fifteen minutes for reading instructions, 30 to 45 minutes for trading (depending on the number of periods), and 15 minutes for discussion. Materials: You will need one copy of the instructions for each person and one deck of ordinary playing cards for each replicated group of two workers and one firm. No money or other incentives are required.

Suggested Citation

  • Jacob K. Goeree & Charles A. Holt, 1999. "Employment and Prices in a Simple Macroeconomy," Southern Economic Journal, Southern Economic Association, vol. 65(3), pages 637-647, January.
  • Handle: RePEc:sej:ancoec:v:65:3:y:1999:p:637-647
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    Cited by:

    1. Riedl, Arno & van Winden, Frans, 2007. "An experimental investigation of wage taxation and unemployment in closed and open economies," European Economic Review, Elsevier, vol. 51(4), pages 871-900, May.
    2. Geert B. Woltjer, 2005. "Decisions and Macroeconomics: Development and Implementation of a Simulation Game," The Journal of Economic Education, Taylor & Francis Journals, vol. 36(2), pages 139-144, April.
    3. Riedl, Arno & van Winden, Frans, 2012. "Input versus output taxation in an experimental international economy," European Economic Review, Elsevier, vol. 56(2), pages 216-232.
    4. Zheng, Liping & Severe, Sean, 2016. "Teaching the macroeconomic effects of tax cuts with a quasi-experiment," Economic Analysis and Policy, Elsevier, vol. 51(C), pages 55-65.

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