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And finance Allah Shmoop What are aggregate consistency conditions All

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right people You want to prove something Coke is better

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than Pepsi Superman can beat up the Hulk or the

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rate of growth of the money supply has only a

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tangential influence on real economic variables For the first two

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of those arguments Yeah good luck We're sure you've heard

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opinions on what those things are like Yeah but to

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make an argument like the last one well you need

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to lay out some formal rules You'll need an economic

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model to explain your position which is where aggregate consistency

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conditions actually come in Any time you want to go

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about proving something in a formal way you have to

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start with basic groundwork Everyone has to be clear about

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the rules which means you have to start out by

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saying some duck kind of facts You kill its first

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rule of geometry reads things equal to the same thing

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are equal to each other That's a big right But

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the dust off leads to well bigger things Euclid starts

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by stating those things that are obviously true Then he

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combines those things using logic to figure out other things

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that are just is true but well probably not as

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obvious like Start with things equal to the same thing

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are equal to each other and then you end by

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being able to build the Parthenon or land a spaceship

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on the moon or Mars or something like that While

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aggregate consistency conditions work the same way they fall into

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the duck kind of category But they provide important building

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blocks when you're trying to prove something in economics specifically

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aggregate consistency conditions layout the quantities That must be true

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when you add up all the actions of all the

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participants in a market it's a way of defining relationships

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and checking that an economic model makes sense Like say

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you want to make a baseball model You're designing a

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computer program to prove Superman would make a better catcher

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than the Hulk You are a really big fan of

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comic books Clearly First though some aggregate consistency conditions for

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the model you got it Consider those things But one

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example might be the total number of hits given up

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by pitchers must equal the total number of hits recorded

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by batters Pitchers pitch batters bath There's no other way

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for a batter to get a hit then to smack

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a ball pitched by a picture All the hits collected

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by hitters have to come from pitches thrown by pictures

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Everything checks out the aggregate consistency Conditions outlined seemingly obvious

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statements that formed the logical basis for how the system

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works The rule here formalizes a key relationship between pitchers

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and hitters in mathematical terms Okay back to con three

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Big aggregate consistency conditions that come off and economic models

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here Ready Write these down One total production equals total

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consumption In other words someone makes it Someone uses it

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right They produce it They consume it too Total dollars

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lent or loaned equals total dollars borrowed OK next up

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three total amount of currency held by market participants equals

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the total amount of currency put into a system There's

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so many shares in a trading in a given name

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Well then there's so many shares traded and given name

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Yeah you're all kind of a A five Put together

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a few of these rules and you're well on your

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way to forming an economic model Then when you're done

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you can sit back relax and enjoy a cool refreshing 00:03:18.615 --> [endTime] Pepsi O or Coke Yeah either way huh

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