The agricultural sector and the urban sector. The “two countries” could be two sectors within an economy. Instead, I think that the right tools to use for macro are the two-country, two-good models of international trade. My problem is that I think that the GDP factory is a bogus story that obscures rather than enlightens. This allows macro to be presented using the familiar tools of supply and demand. The advantage of the aggregate production function is that, when combined with a sticky nominal wage, it yields an aggregate supply curve. When I use the derisive expression GDP factory, I am referring to the aggregate production function. One reason for wanting to change the paradigm is that I believe that trying to describe economic activity using an aggregate production function is a mistake. Even if there is only a small chance that this alternative paradigm is useful, I think it is a worthwhile exercise. I want to get away from thinking of economic activity as spending, and instead move toward thinking of it as patterns of sustainable specialization and trade. Regular readers know that I am trying to nudge them toward a different paradigm in macroeconomics.
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