Quiz 13: Modern Macroeconomic Models
Define dynamic model as a model in which actions that occur at one time affect that happens at other times and static model as which focuses on what is happening at just a particular point in time. The main notable difference between dynamic l and static models of a system is that a dynamic model refers to a runtime model of the system and while static model does not refer during runtime. Another difference is the use of differential equations in dynamic model which are obvious by their absence in static model. Dynamic model keeps on changing reference to time whereas static models are equilibrium of in a steady state. Dynamic model is the representation of static components of the system whereas Static model is more structural than behavioral. Dynamic model consists of sequence of operations, activities, interactions and memory whereas static model is inclusive of class diagrams and objects diagrams and helps in depicting static components of the system. Dynamic model is flexible as it can change from time to time with the possibilities that might arise during the course time. Static model is more rigid than dynamic model as it can be changed and is at equilibrium in a steady state.
In the two-period model of consumption and saving, Budget Constraint Line shows all the possible amounts that the household can consume. The budget line is a link between the consumption and the savings. It delivers the optimum allocation resource between the two components.
Generally a household will have a precautionary savings when the incomes in future are uncertain i.e. when they do not have certainty of their income in the future they tend to have precautionary savings. This is proved in the case of farm families who do not have security about their future income as at any time bad weather may change their expectations. So these families save large amounts of precautionary savings.