Tuesday, November 20, 2007


We have been learning macroeconomics this quarter and I was able to apply my knowledge to understand real-life behavoir.
Note: familarity with IS-LM model, income identity and macroeconomics in general are pre-requisites to understanding the discussion below.

Your steady state equilibrium prior to coming to Darden can be presented by

r = real interest in pursuing B-school education
D = Darden Identity = C + I + S + P + NX

C – Case method
I –Invested effort
S –Sleep – ‘lack of’
L– Liquidity
M – money supply
NX – Net exchange of ideas

In addition, we assume that G - grades are held constant at 'B' and as it is not on the axis would act as shifter of the curves.

When you enter Darden and your disposable income goes down, you take loans and hence
Liquidity ↓ Money supply↓
Hence your motivation level decreases reflected in decrease of ‘r’ ;

LM curve must shift down to the right

Moving ahead in time through Q1 and Q2,
C- Case method hours move from ‘0’ to ‘4.5’ hrs daily

Invested effort ↑ and Sleep – lack off ↑

Hence the IS curve shifts down to the left

The intersection of IS and LM is the new equilibrium state of Darden student. How this identity translates to behavoiral espects is beyond the scope of this discussion

1. Like all economic theories, the above model has no relevance to reality
2. Disclaimer on disclaimer 1 is that I am not an economist nor plan to be one!


Anonymous said...

Hey, that's so funny :) Loved this post.

Unknown said...

Good one dude for me it sounds like


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