We start by introducing the key ingredients in macroeconomic modelling: investment, production, income and consumption, and explain the corresponding equilibrium conditions. Modelling these quantities in discrete time, we describe the multiplier-accelerator model, a classic model of macroeconomic dynamics, and an example of a second-order recurrence equation. We then embark on describing how to solve linear constant-coefficient second-order recurrence equations in general. The general solution is the sum of the solution of a corresponding homogeneous equation and a particular solution. There is a general method for determining the solution of the homogeneous equation, involving the solution of a corresponding quadratic equation known as the auxiliary equation.
Review the options below to login to check your access.
Log in with your Cambridge Aspire website account to check access.
If you believe you should have access to this content, please contact your institutional librarian or consult our FAQ page for further information about accessing our content.