Principles of Economics: Problems: "Say's Law": Inflation
Econ 2: Spring 2014: UC Berkeley: Paper Assignment/Administrivia

Principles of Economics: Problems: "Say's Law": Depression

Suppose that in the area around Euphoric State University in the state of Euphoria there are 1500 workers: 500 potters, 500 baristas, and 500 yoga instructors. On January 1, every worker has $4,000 in cash on hand. produces $4,000 worth of their goods each month, which they then send off to the consignment store which sells their goods for them and pays them (in cash) at the very end of the month. Every worker gradually spends their cash on hand down steadily during the month so that they run out of cash just as the month ends--at which point in time the consignment shop pays each of them $4000.

Bearing in mind that everyone's income is someone else's expenditure, suppose that all 1500 workers decide on February 1 that they need to be safer in their financial transactions--that they need to start the month of March not with $4000 in cash but with $4500 in cash:

  1. How much do each of the 1500 workers plan to spend in February?

  2. How much cash on hand do each of the 1500 workers have on February 28?

  3. How large are the payments that each worker receives on March 1, and how much cash does each of the workers have on hand at the end of March 1?

  4. How much do you think each of the 1500 workers will plan to spend in March? "5. How large do you think the payments that each worker receives on April 1 will be?

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