Last time we analyzed the steady-state of our model. We have developed equations which we can use to calculate the steady-state values for given parameters values. Today, we use these equations to see how could changes in parameters values affect the variables values. We can use the Octave (or Matlab) script which we developed last time. We just do minor updates. We select one variable and we assign a range of value instead of single value to this variable.

Let’s take parameter . We would expect that lower values of this parameter would mean that the household would work more and also consume more because its willingness to work would increase. Let’s test our theory. We will examine an interval between 1.0 and 1.8. We will ask Octave to generate a vector of values between these two boundaries. We will to it by this command:

psi=1.0:0.001:1.8;

The value in the middle sets a size of space between these two values. In fact, this values defines the size of the vector. The value 0.001 is small enough to provide us a smooth plot. We also substitute all *, / and ^ operators with .*, ./ and .^. The standard operators without dots are used to operations with two numbers, two vectors or two matrices. But in our case, we want to multiply (or divide or power) all values of the vector by a single value. This is completely different operation than multiplying two vectors or two matrices. That’s why we use the operators with dots.