texts: Why do all/majority of loan contracts charge nominal interest rate instead of fixed real interest rate?

texts: As far as I understand, all/majority of loan contracts charge nominal interest rate, there are (almost?) no loan contracts that charge fixed real interest rate. Why is it so? Normally I would expect the directly opposite situation, with all (or the vast majority of) loan contracts charging the fixed real interest rate. After all, such loans would be more predictable compared to charging nominal interest rate. Borrowers and lenders would know that neither of them would benefit from inflation/deflation at cost of the other side, so borrowers would be more willing to borrow and lenders would be more willing to lend, real interest rate paid would be the same no matter what happens with the aggregate price level. Of course we will need to know the current inflation rate, but it's not like this information is secret, so it shouldn't be a problem.


texts: Help with regressing GDP and independent variables

texts:
Background: I working on how GDP is affected by CPI, investment,consumption and commodity price. I am working with time-series

Problem: I tried to regress based on log values of all but this resulted in residuals being heteroskedastic and also R-squared was equal 1.0 which I had reservations about (something just didn't feel right). I then decided to change it by regressing log difference of all variables. The results were good with residuals being near perfect homoskedastic as well as stationary though not normally distributed but found some papers that argue normality may not be a problem.

My question is whether it's a good idea to pursue this further? I searched the internet for some answers but found nothing really so any opinions would really be helpful or any links to any research papers that might be useful

I am using Stata to do regression.


texts:
In standard economic theory wages are simply prices on the labor market determined in equilibrium by the supply and demand of labor. Looking across space within countries it is however standard to find a relative large variation in local wage levels. At the same time labor is often very mobile again within countries.
For the United States of America the U.S. Census reveals that in 1990 four percent of white males age 25 to 34 moved across state lines, with the cumulative effect that almost a third of this group no longer resided in the state in which they were born.
When individuals move the supply of labor changes and one could expect wages to equalize based on the assumption that the migration itself was motivated by the one state offering higher wages than another. Seen in the light of this it can seem a little puzzling that spatial wage differentials nonetheless continue to exist. What are the main explanations offered by economic theory?


texts: Simultaneous consumption tax and subsidy

texts:
Suppose the government introduces a simultaneous tax and subsidy on a consumption good, which is produced under perfect competition. If the tax and the subsidy are equal, then there will be no distortion, but also no tax revenue.

Similarly, a policy combining taxes and subsidies on a good can only raise revenue if it reduces the equilibrium amount of the good, i.e. if it introduces distortion. In other words, there is no possibility to raise tax revenue through taxes and subsidies on consumption (no lump sum taxes) without distorting the market.

What were the (first) papers to analyze this problem? Could someone provide a reference for such a result? I would prefer an academic paper with such an analysis to lecture slides. As a bonus, any exception to this line of argument would also be interesting.

I remember reading somewhere that combining taxes and subsidies used to be a real policy proposal in order to have taxation without distortion until a paper came along showing that such a policy cannot raise revenue. Unfortunately, I can't remember where I read that.


texts:
I came to know about the term seigniorage meaning the difference between the value of money and the cost to produce it. I also read somewhere that many countries use seigniorage as a means of revenue inorder to reduce the requirement of or add to the revenue from taxation. I want to know:

How much revenue does a country make by printing money? (Information on any country will be appreciated)
What are the specific laws (in the country mentioned in the answer to Q1 ) that govern the specifics of printing money (like amount, date, period etc.)?

N.B : Information on any country(or countries) will be appreciated.


texts: How to find daily/weekly data on the state of the economy

texts:
I am interested in economic modelling of the correct state of the economy.  Figures such as unemployment and gdp come out with a considerable delay.  What are good publicly available datasets that are available daily/weekly that are known to be proxies for unemployment and gdp growth?
Ideally these data would be available for a number of countries. I am only interested in datasets I can download in full.


texts: How to find the cost function for perfect complements

texts:
Imagine I got a production function like it :
$$
\min\{x_1, x_2\}
$$
How can I find the cost function?


texts: Debt-to-GDP ratio in connection to inflation

texts:
On this segment of the Tucker Carlson show, interviewing Robert Hockett, as an advisor to Rep. Octavio-Cortez on the proposed Green New Deal, the following interchange ensues:

Tucker: "On the low end, this will be the most expensive thing the US has ever undertaken, including rural electrification, the Second World War,... And I'm just kind of wondering in a country that has more debt than GDP, how would we pay for that?"
RH: "Here's the key, [...], here is the take away - I want you to remember this; I hope everybody will remember this - inflation is a relation, right? It's the relation between the quantity of money and the quantity of goods. Now, if the money that you're spending is resulting in the production of a great many more goods, you have no inflation problem: more production absorbs more expenditure. The problem with the $7 trillion dollars that we spent during the Bush years, and of course, in the last tax cut is that it wasn't actually productive, but note that even that didn't bring about inflation."

Clearly, Robert Hockett seems to imply that in the absence of inflation, the high debt-to-GDP ratio is not an issue.
The question is:

Can inflation (or absence thereof) be used as a sole indicator that the debt-to-GDP ratio is (not) having deleterious consequences?

In fact it would seem as though inflation would help repay the debt by making it cheaper, and that the real problem would come in the absence of inflation, having to service the interest on the debt  through tax increases, or more debt...
Note the following passage in this answer by Brian Romanchuk:

...it is reasonably safe to argue that greater interest payments will squeeze out other spending if we want to keep inflation around a target level.

So interest on the debt would crowd out spending in other areas if inflation is to be contained. Naturally, there is the big distorting effect of the \$US acting as a haven investment strategy, potentially nullifing any linear relationship between debt and inflation. In fact it makes sense to consider the US as an aside case given that the $US is the reserve currency.
With all these caveats, inflation could act as an indirect indicator that the debt-to-GDP ratio is hard to manage.
That being said, it seems like a specious argument to claim that the stability of inflation following the last two rounds of tax cuts should be reassuring when two thirds of the US Budget go to non-discretionary spending as it is, and the projected cost of servicing the debt is about to surpass military spending, according to the NY Times:

But this is a comment more directed to the argument in this case than to the actual question about the value of inflation as a metric of too-high a ratio.


texts:
When a country's economy is currently in recession (or has entered a recession), will the net export increase or decrease? What will happen to the major trade partner's net export (will it be the reverse, such that the country's net export decreases, the other's increases)? What is the reason behind the phenomenon?

My hypothesis right now is that recession will lead to a decrease of export (less production due to less demand and the high price of labor), which will lead to the rise of net export of its major trade partner (export - import, import reduces). The major argument against this is that the demand for imported goods in the country that undergoes recession will fall, leading to a fall in export of the trade partner country.


texts: Locating Sweden's Net Savings Rate, Public Saving, Private Saving, and Corporate Savings Rates?

texts:
I'm looking at the savings rates for Sweden and would first like to better understand the breakdown between Gross National Savings, and Net Savings? I've looked around and still haven't found an explanation which clarifies this.

Secondly, from a purely data gathering perspective, I've checked the OECD, World Bank, IMF, Bloomberg etc, but I am unable so far to identify the Household, Private, and Public savings rates (which I think in total sum to the Net or Gross Savings rate?)


texts: Question regarding General Equilibrium under non-convexities

texts:
I have the following question on my problem set:

It's clear to me, since consumer 2 does not care about good 2, that we should give all the economy's endowment of good 2 to consumer 1. In the other hand, both consumers care about good 1.

For item a), I think that in any optimal allocation we should have $x_{2,1} = 1$, since consumer 2 does not care about good 2.

Also, with this in mind, any allocation that has $x_{1,1} + x_{1,2} = 1$ is Pareto optimal, because we can only make one better hurting the other (assuming we have already exhausted good 2, giving all the economy's endowment to consumer 1). Question: is this reasoning right?

Another question: assuming I got it right, I have no idea how to find the vector price for each case.

For item b), the 1st Welfare Theorem needs to hold because there's local non-satiation for both consumers. On the other hand, lexicographic preferences are not convex. So, there's no reason for the 2nd theorem to hold. Is that sound?

Thanks a lot in advance!!


texts:
There is a huge literature in economics that studies time-inconsistencies in decision-making and that consistently finds that individuals make present-biased choices in a variety of contexts: we do not save enough for retirement, we procrastinate at work, we invest too little in our human capital, we drink and eat too much, we exercise too rarely, etc. It is widely accepted in our profession that human beings are distracted away from their long-term goals by their short-term impulses.

At the same time, a major theme in philosophy and literature (that goes back to Greek philosophy) is our inability to enjoy the present moment. According to this view, we are constantly dreaming of future imaginary pleasures and unable to satisfy ourselves with our present situation. An archetypal example is someone who always sacrifices the present for a mid-term goal (graduating, earning money, buying a house, getting tenured, ...), who always believes that she will enjoy life once the goal is achieved but who always finds a next step - and who realizes that too late. In the economics terminology, this person's most important decisions (work-life balance for instance) are actually future-biased.

I am aware that both phenomena are difficult to compare since the first one is extensively documented quantitatively whereas the second one is more speculative. But it strikes me that our view of intertemporal trade-offs is so dramatically different from what philosophers and psychologists think.

Is there any attempt in economics to reconcile both views? For instance, are you aware of a study that finds that people are future biased? Any reference or thought about this topic would be greatly appreciated. Thanks!


texts: Showing marginal product of capital is independent of the scale of production

texts:
The image is pretty much self-explanatory. To add some context, I'm learning Solow-Swan Growth Theory and my professor said that the marginal product will not change if both capital and labor increase at the same scale.

I can intuitively understand that it makes sense but trying to apply a simple equation (the blue one, the definition of constant marginal product) is just not working.

It's either I'm not partial differentiating correctly or the whole theory is wrong.

I don't see anything wrong with what I've done but why are they not the same?


texts: Does the formation of a firm imply the creation of organisational capital?

texts: According to Ronald Coase (The Nature of the Firm, 1937) firms are created because this reduces transaction costs compared to market transactions. Transactions are internalised because of the complexity involved in specifying them in contracts. It would seem that internalising a transaction involves internal processes and capacities which will likely be specific to the firm to some degree. Would these be considered a form of organisational capital?


texts: Has an industry driven educational conditional cash transfer ever been done?

texts:
I've studied the educational conditional cash transfer literature and I know it has been popular amongst development economists. But it seems that underfunded and potentially corrupt bureaucracies of developing countries are the ones that have to pay for it.

Inspired by Poor Economics, Guns Germs and Steel, and the current high demand for highly educated software talent, this idea of "industry-driven conditional cash transfer" came to me and I am curious whether it has been experimentally researched in formal development economics literature?

Essentially think "educational conditional cash transfer" except instead of governments, corporations that need well educated talent pay for it.

A for profit company, for profit bank, or social entrepreneur might do the following:

Create Knowledge Workers

Pay a few majority world people to learn and master a skill (i.e.
software development or design).
Find a company or person in a developed country who has a need for a
person with that particular skill and is open to hiring a remote
worker.
Make the match and take either a finder’s fee or a cut on the hourly
rate. Use these earnings to pay for education of more majority
worlders.
Majority worlders making 10–20K USD per year bring a huge amount of
money into their communities. The wealth spreads to their day
laborers, restaurants, shops, service providers, educational
institutions, etc.

OR

Create Entrepreneurs

Pay a few majority world people to learn and master a skill (i.e. entrepreneurship or design or engineering).
Invest in the majority world entrepreneur’s idea with a founder-friendly convertible SAFE note.
Reap rewards when their endeavors succeed.

There is an instantiation of the above process in a platform (called "LD Talent") and it's been an interesting and evolving vision, and similar startups like "Andela" and "Modern Labor" exist, so I'm curious to ask about whether the idea has been tried in an academic setting?

If not, what is the closest thing to this idea that has been tried in an academic development economics study?


texts: Connection between saving and investments-Y=C+I+G+NX

texts:
I understand
Y-G-C = I+NX = Savings . The equation that we see everywhere in economic textbooks. I see the mathematical logic.
BUT
Given that I = capital investment in GDP accounting surely Savings are what is not spent after you haven't spent anything on capital goods etc. So in my head
Y-G-C-I = NX = S and infact why not take NX over to the other side!
What "mistake" am I making here?
I can regurgitate the textbooks and get the marks but I just don't understand it for myself from first principles.


texts: Why do we consider purchase of house by households as investment?

texts:
According to what I have read, investment is the expenditure on  creation of capital goods, which means that it is done by producers.

Then why do we treat buying of house by households as investment when they are not doing any production?

In the sense of treating house as investments, we can treat other consumer goods also like investments. For example, if a consumer buys a TV, we could treat that like an investment because he's receiving a benefit for as long as he owns the TV. Why do we treat houses differently?


texts:
I am looking for total amount of customer loans banks are giving in a country. I can find data for US at
http://research.stlouisfed.org/fred2/series/CLSACBW027SBOG

However I am looking for statistics for also other countries, Europe, China, Russia, Japan, India, etc.


texts: Why would a natural monopoly lose money when MC=P, but a competitive firm would get positive accounting profit?

texts:
I assume that the natural monopoly is required by law to have maximum price=MC. According to this video such regulation would require constant subsidies for monopoly, because otherwise it would go bankrupt:

https://www.coursera.org/learn/microeconomics-part2/lecture/VWpuW/3-1-6-natural-monopoly-regulation-though-marginal-cost-pricing

The monopoly losses money because P < ATC, while for a competitive firm P > ATC.  Somehow it seems that a competitive firm would have lower ATC than a monopoly. I don't understand why.


texts: Jokes in Economics; Challenging Assumptions in the Dismal Science

texts:
We've delved into questions about the history of economics. We've pondered what the most important equations in economics are. But in every science, academic culture inevitably forms a special set of ideas that further our understanding of the most fundamental ideas we use in our work: jokes.

Jokes are only funny if they set you up to have a false assumption about the material at hand, and then subvert it. In this way, jokes can be used to reveal underlying assumptions we economists might take about the world that are very well absurd, but important nonetheless to moving towards more sophisticated models. Even within mainstream economic schools, ideas like using cardinal vs. ordinal utility, or utilitarianism itself can be contentious. John Rawls's veil of ignorance or Nozick's more libertarian epistemology? Are sticky wages really realistic?

What are some jokes you have encountered that would be useful for addressing an underlying assumption of an economic theory, or economics itself?

(Any further recommendations for improving this question are appreciated. It can even be a community question if that would be best.)


texts: Solve for the steady state with CRS Cobb-Douglas, problem with the system of equations

texts:
There is one agent with utility function given by:

\begin{equation}
U(c,l) = \frac{c^{1-\sigma}}{1-\sigma}-\frac{l^{1+\gamma}}{1+\gamma}\tag{1}
\end{equation}

With budget constraint:

\begin{equation}
c_{t} + k_{t+1}   = (1+r_t)k_{t} + l_tw_t \tag{2}
\end{equation}

The technology in the economy is a standard Cobb-Douglas with CRS:

\begin{equation}
Y = K^{\alpha}L^{1-\alpha}\tag{3}
\end{equation}

The FOC of the utility-maximization problem are:

\begin{align}
 c_{t+1} &= c_{t} [\beta (1+r_{t+1})] ^{\frac{1}{\sigma}}\tag{4}\\
 %
 c_{t}^{\sigma} l_{t}^{\gamma} &= w\tag{5}\\
 %
\end{align}

While the FOCs of the profit-maximizing problem are:

$$r = \alpha K^{\alpha-1}L^{1-\alpha} \tag{6}$$

$$w = (1-\alpha) K^\alpha L^{-\alpha} \tag{7}$$

In the steady state, equation (4) implies the following

\begin{equation}
r   = \frac{1-\beta}{\beta}\tag{8}
\end{equation}

Hence, to solve for the steady state, we need to solve for the following system of equation:

\begin{equation}
C = rK + wL \tag{9}
\end{equation}

\begin{equation}
C^{\sigma} L^{\gamma} =w\tag{10}
\end{equation}

$$r = \alpha K^{\alpha-1}L^{1-\alpha} \tag{11}$$

$$w = (1-\alpha) K^\alpha L^{-\alpha} \tag{12}$$

Where the unknowns are $C, K, L,w$ ($r$ is known).

But from here I can't solve for the exact values of these variables. What information I miss?


texts:
For instance, in the introduction of this paper (first paragraph), talking about Figure 1, they say that labor demand is measured as the real wage bill normalized by population.

Is it common to measure it with the wage bill? But isn't the wage bill an equilibrium result of the interaction between demand and supply?


texts: Why Nobel prize winners studied economics?

texts:
Recently I have read a great article about  Olivier Blanchard and I wonder why he has chosen to dedicate his life to study economics? Moreover he managed to do a research in several subfields, which is very impressive.

In the article we can find a quote:

  Also at Nanterre, he developed a fascination with economics and the ways in which it could be used to make the world a better place

Is there any good book or an article which explain why Nobel prize winners chose to study economics? How did they get passionate about economics?


texts: I'm aware that some companies give out dividends to their shareholders, but are there companies that don't? And if they don't, what incentivizes people to buy stocks at the IPO? Is it simply the belief that other people will value the stocks?


texts: Example in which revealed preference doesn't imply preference

texts:
I'm studying Varian's Intermediate Microeconomics, in which the principle of revealed principle is stated as follows (for now we're assuming strictly convex indifference curves):

Let $(x_1, x_2)$ be the chosen bundle when prices are $(p_1, p_2)$, and let $(y_1, y_2)$ be some other bundle such that $p_1x_1+p_2x_2 \geq p_1y_1+p_2y_2$. Then if the consumer is choosing the most preferred bundle she can afford, we must have $(x_1,x_2) \succ (y_1,y_2)$.

It's further stated that "if the consumer chooses the best bundles she can afford, then the revealed preference implies preference". I can't get an intuitive grasp on this. Even if a bundle $X$ is chosen to $Y$ $(Y \neq X)$, and even if $X$ isn't the best affordable bundle, shouldn't that at least imply that $X \succ Y$? Because if not, then there must be some example where $Y \succeq X$ and still the consumer chose $X$.

Is there some counterexample in which revealed preference of $X$ does not imply preference, provided that the chosen bundle $X$ isn't the best affordable one?


texts: Why is having lots of silver and not raising/decreasing taxes leads to inflation in a country?

texts:
In The Spanish Empire, Silver, & Runaway Inflation: Crash Course World History #25, it is claimed that

"In ..., the silver was pouring into Spain, and because they were collecting same taxes as 60 years before, that lead to inflation..."

If you watch the video, a similar situation happens in China; the government forces people to produce silk, and that lead the price drop, but that somehow also leads to inflation even though now the government has lots of silk which is quite valuable.

So, what is the reason for the inflation in both cases ? and how taxes related to the inflation in the Spanish case ?


texts: Independence of latent price and market microstructure noise

texts:
When examining how Market Microstructure works and affects price formation, there is talked about the:

"Assumed independence of of latent price and microstructure noise"

From "On the Correlation Structure of Microstrucure Noise: A Financial Economic Approach", Diebold and Strasser, 2013.

I am struggling to understand what this means exactly?

For example, when examining a lot of financial trades and quotes, and looking for a underlying latent price - what does it mean to assume independence of the noise? And what do you assume the noise is then specifically? "Wrong" trades? Computer-errors?


texts: gibbard-satterthwaite theorem and median voting

texts:
The gibbard-saterthwatie theorem states that a social choice function where truthfullness is a dominant strategy must be dictatorial. However, in a median voting system, with single peaked preferences of voters, truthfullness is a dominant strategy yet it is not dictatorial.
what is the solution to this contradiction?


texts: Market Behavior under expected and unexpected news

texts:
I found the following text in the paper "Real-time Price Discovery in Foreign Exchange"

  The general pattern is one of very quick exchange rate conditional mean adjustment, characterized by a jump immediately following the announcement, and little movement thereafter. Favorable U.S. “growth news” tends to produce dollar appreciation, and conversely. [...] [A] one standard deviation U.S. payroll employment surprise tends to appreciate (if positive) or depreciate (if negative) the dollar against the DM by 0.16 %.17 This is a sizeable move [...]

implying that this news are only available to the market once the announcement is made by the US authorities. Other similar announcements are considered: Retail Sales, Industrial Production, Consumer Credit, etc.

I am having trouble to understand why this is an acceptable explanation. From my point of view, the markets must "feel" the increase (decrease) and adjust accordingly before the announcement. Any price change after an announcement seem as irrational or herding behavior to me. On the other hand, I can think of examples in which a real surprise causes movements in the market: changes in Central Bank policy, social unrest, accidents, etc.

Am I missing something?


texts: Effects on transit system shutdown based on local workforce end-of-day times?

texts:
I'm curious if there are any studies based on logistics and economics of shutting down the bus/transit system before the general population's working class can go home.

For example, the small town I live in, yet large enough to have transit, a huge retirement community (might factor in), and some amenities like app-based shopping (but no Lyft type service) has a bus system that will stop at 8:30 within a 3 mile radius of the main hub, 6:30 for farther out east, and about 7:30 for west (basically early). The stores, however, close at 9 or 11, as do most restaurants.

I began to factor in a few things, and have been web-searching to see if there are any studies.

New workforce (teenagers) probably haven't saved enough for a "good" car, which I would guess encourages an older, more experienced workforce. A commuter can not shop after work (no time) nor can they work until this time. The meaningful fact is these are minimum-wage jobs, meaning that the ones most likely to need the bus after 9 are the ones who work at the stores.

Supply and demand effects, one would assume that younger employees work mornings and mid-day, and the later ones find rides through friends. Thus, the pizza/party and taxi economy thrives, but there is an unfulfilled demand for low-experienced workers in late shifts.

I am just proving I have done some thought-searching on this, as the keywords to search for, if a paper exists, tend to get me transit schedules and not studies on such.


texts: Is expensive private school a rational investment?

texts:
In Australia, successive conservative Federal governments have increased the share of public funding for non-government schools, and for the top schools the amounts of annual funding are many millions of dollars. The top schools have generally chosen to continue charging their fees and reinvest this and whatever other non-Govt income in facility upgrades (but most have also received small Govt grants to their capital works too). Lots of state schools (govt schools) are barely scraping by - my son's school doesn't have a librarian this year, so the library is not available through recess (its fine for him, our house is full of books, but lots of kids there won't have that).  Things are no doubt worse in regional schools in states in economic doldrums.

https://www.abc.net.au/news/2019-08-13/rich-school-poor-school-australias-great-education-divide/11383384

[My question is not about the rights and wrongs of this in general, but the investment profile it reveals is the background to my question.]

I have a strongly felt intuition that the best investment I (or any other relatively rich person) could make is not just in my kid, but also in him having better educated contemporaries in the environment he'll go to work - so at least kids all over the city, probably the state, likely the country and possibly even international neighbours.

As a small example, within his class, my son is doing fine. But I think he's more likely to get a good job if all the other kids are equipped to take their shot at entrepreneurship or advanced studies or whatever their specific kind of excellence might be. My son might not be a great entrepreneur but others might; or he might be a great entrepreneur and need an enormous quantity of highly skilled workers. I think this applies right across the distribution of skill level - the economy has less and less use for unskilled labor, so the greater the proportion of kids mastering literacy, numeracy, history, the more productively the economy can employ them.

My question has two parts:

is there any evidence my intuition is correct?
if I were very rich, should I send my kid to the best school I can afford, or
go some way down the list and spend a matching amount charitably at high-need
schools?

The factors that people believe are important when their kid might get into an elite school:

networking & prestige: factors relating to social class. This one probably has real effects - Boris Johnson becoming Prime Minister is a perfect example. Is that a rational preference?
non-stunting / pro-flourishing environment: What's our model of human potential and growth like? When do diminishing returns kick in for different people?


texts: Can overreporting the oil production cause a fall of the oil prices

texts: The top news today is a discovery that oil production was overreported by 800 thouthand barrel a day. Could it cause 5x price fall during the year? Such allegations challenge the market theory, IMO, which says that if your price depends on some agency report rather than supply and demand then market theory costs nothing, right?


texts:
From Macroeconomics 7th edition by Gregory Mankiw, p166.

  Here’s a numerical example. Suppose that 1 percent of the employed lose their jobs each month ($s$ = 0.01). This means that on average jobs last 100 months, or about 8 years. Suppose further that 20 percent of the unemployed find a job each month ( $f$ = 0.20), so that spells of unemployment last 5 months on average. Then the steady-state rate of unemployment is

  $\frac U L = \frac {0.01} {0.01 + 0.20}
= 0.0476.$

  The rate of unemployment in this example is about 5 percent.

Well, here I don't get this part.

  This means that on average jobs last 100 months

To me, the fact that 0.01 times 100 months comes to be 1, looks very plausible in a sense. But I don't get the process in it.
My guess was like as follows. If anyone among 100 people loses their job monthly,

(suppose they can never be reemployed, which is the opposite in the text book; I'm not sure that this matters on the issue here)

then the first guy loses after 1 month, second guy 2 months, ...
So we can add up all their work period 1+2+3+...+100 which is 5050, and divide it with 100 people, then we get 50.50 months per person. What am I missing?


texts: Fundamental question on marginal utility

texts:
I was just thinking back to some introductory economics courses, but now I'm extremely confused on a fundamental concept. How is marginal utility interpreted as the additional "happiness" gained from consuming one more unit of some good? If marginal utility is the derivative of utility, then isn't it only measuring how the gains from an incredibly small consumption of some good? And then I started thinking about indifference curves and the MRS. I'm not sure how the MRS tells you the slope at which you are willing to exchange 1 unit of good x for however many units of good y? Take this simple indifference for instance where y = 100/x:

The MRS at (20,5) is -1/4 which should mean that at (20,5) this person will be ok with trading in 4 units of good x for 1 unit of good y correct? But this agent is only indifferent at (16,6.25) so I'm not really sure what the interpretation of the slope MRS here could be and how that differs from the indifference curve.


texts: So I've seen in my textbooks and many places online that when marginal product is more than average product average product is increasing, when average product is falling average product is greater than the marginal product. I get the economic intuition behind all this but I was wondering how can one show this mathematically.


texts: Random Effects Model with Only Time-variant Independent variable

texts:
I'm trying to estimate a panel with random effects where the dependent variable depends on time and id; and the independent variable depends only on id. However, the results that I'm getting are exactly the same as OLS and I'm not sure how to interpret this.
Thank you!


texts: Stock price and exchange rate is correlation, but VAR model order is zero

texts:
It is well known that Japanese stock price and exchange rate(USD/JPY) is correlation, So I built a VAR model in python about stock data(Tokyo stock price index) and exchange rate(USD/JPY) and I fitted it by AIC.

As a result, a certain year(2017) was calculated that order is zero,
only constant value is displayed.

That means current stock price can explain only constant value,
not need past price or exchange rate.

That calculation result is some times occurred when economic data analysis
or my calculation is wrong?

data17['TOPIX'] = np.log['TOPIX'].diff()
data17['EXCH']  = np.log['EXCH'].diff()

result = VAR(data17).fit(maxlags=20,ic='aic')

Results for equation TOPIX
========================================================================
           coefficient       std. error           t-stat            prob
------------------------------------------------------------------------
const         0.000937         0.000568            1.650           0.099
========================================================================

Results for equation EXCH
========================================================================
           coefficient       std. error           t-stat            prob
------------------------------------------------------------------------
const        -0.000159         0.000409           -0.388           0.698
========================================================================
```


texts: Difference between two ways of calculating real return

texts:
I've just learned the following way of calculating the real return rate $R$ of an investment:

  $$R=\frac{P(1+N)-P(1+I)}{P(1+I)}$$

Where $P$ is the initial value invested, $N$ is the nominal interest rate and $I$ is the inflation rate.

However, I've seen an alternative formula for calculating the same thing, which is

  $$R=N-I$$

So my question is, which one gives a better result for the effective rate of return of an invesment and why? Thanks very much in advance.


texts: Abraham (1987) Simple Job Market Matching Model

texts:
I have a question about a derivation in Abraham (1987)'s simple job market matching model (equations 3 through 7):

She begins by writing down tautologies:

J - V = L - U = E

where J is the number of jobs, V is the number of vacancies, L is the total labor force, U is the total unemployed, and E is the total employed. Consider a probability function that a particular vacancy will be filled:

p(V/U) where $p_u > 0, p_v <0, p_{uu} < 0, p_{vv} > 0$.

Now, letting the total quits and firings from the current stock of employees be sE we must have:
\begin{equation}
 p(V/U)V - sE =0
\end{equation}
Letting U/E = u, V/E = v, and dividing through by E we get:

\begin{equation}
p(v/u)v = s
\end{equation}

Now things get tricky. She writes "along the set of points satisfying (the above)" we have:

\begin{equation}
\frac{dv}{du} = - \frac{p_u}{p+p_v v}
\end{equation}

My question is: how? Suppose I treat this as an implicit differentiation problem. Write $F(v,u) = p(v/u)v-s = 0$ then we know we know:

\begin{equation}
\frac{d v}{d u} = - \frac{\partial F}{du} / \frac{\partial F}{dv}
\end{equation}

I obtain $F_v = p + (v/u)p_v $ and $F_u =  - (\frac{v}{u})^2 p_{u}$ which yields:

\begin{equation}
\frac{dv}{du} =  \frac{(\frac{v}{u})^2 p_{u}}{p + (v/u)p_v}
\end{equation}

This doesn't look very close. Am I missing something? What's going on here?

EDIT:

Inspired by the answer below, I agree it is as simple as totally differentiating P(u,v) = p(v/u).

\begin{equation}
p(v/u) = P(v,u) \rightarrow P(v,u)v - s = 0
\end{equation}

Now, let's totally differentiate this expression with respect to v,u, and s.

\begin{equation}
\left[P_v(v,u)v + P\right] dv + v P_u du - ds = 0
\end{equation}

Consider $ds = 0 $ e.g. no change in the separation rate. This yields:

\begin{equation}
\frac{dv}{du} = - \frac{vP_u}{vP_v + P}
\end{equation}

Substituting $p(v/u)$ for $P(v,u)$ gives the expression off by a factor v.


texts: When and to what extent should the money supply of a pegged currency be included in the "parent" currency?

texts:
For example, the Manx pound is in a de facto currency union with GBP.  The Isle of Man Bank chooses to back IMP one-to-one with Bank of England notes, but is not legally required to do so.  At one-to-one this would automatically be part of the GBP money supply.  In principle it could expand the IMP money supply, and since IMP is tied to GBP, one could argue this increase should be included in the GBP money supply.

The Singapore dollar and Brunei Dollar are pegged to each other and the total money supply managed by the MAS.

On the other hand, the HKD is pegged to the USD without one-to-one backing and the federal reserve has no control over it (HKD being managed by Hong Kong Monetary Authority).

During the Irish Pound-Sterling pegging era, we again had separate monetary authorities, but currency union.  First through Bretton-Woods and later "managed".  In this case GBP was mostly accepted for trade in Ireland, while IEP was rarely accepted in the UK.  Would GBP be in the IEP money supply, but the IEP not in the GBP?

When performing an analysis on currencies of this nature, how should we determine what to include and not in the money supply calculation?


texts: Fehr & Schmidt, ultimatum game, inequaltiy aversion, perfect subgame Nash equilibrium

texts:
I am preparing for an exam. I have found an old exam but I have no solutions for it, so I tried to solve it, but I dont know if I did it correctly and need therefore your help.

The problem looks as follows:

Ultimatum game, proposer (Player 1) and responder (Player 2) bargain about the
 distribution of 80 Euro. The proposer offers an amount$\ [0; 80]$ to the responder
who may accept or reject this offer. If responder accepts, he gets$\ z_2$ and the proposer gets$\ z_1=80-z_2$. In case of rejection, both get nothing.

I am looking for the subgame perfect Nash equilibrium.

$\ U_i=z_i-0,4max(z_i-z_j,0)-0,8max(z_j-z_i,0) , i\neq j , \epsilon (1,2)  $

First of all, I am confused since usually the assumption is $ \underline{\beta>\alpha}$. This, does not apply here in my opinion. Since the term $\ 0,4max(z_i-z_j,0)$ expresses envy, where the$\ 0,4$ is generally expressed as an $\alpha$, but given here as a number. On the other side, the term$\ 0,8max(z_j-z_i,0)$ expresses fariness, generally given by the preference paramter $\beta$.

Anyway,  I tried to solve it via backwardinduction as follows:

2nd Stage:

i) Responder accepts if $\ z_2>z_1$ and it holds that

$\ U_2=z_2-0,4(z_2-z_1)>0$

$\ z_2>0,4(z_2-z_1)$

I think, this condition will never be satisfied, because the propeser will never offer more than half of the amount in question, the 80 Euro here in this example? For me that is the reason why the term  $\ 0,4max(z_i-z_j,0)$ in the utility function just gets zero.

ii) Responder accepts if $\ z_1\geq z_2$

$\ U_2=z_2-0,8(z_1-z_2)>0$

$\ z_2>0,4(z_1-z_2)$  with $\ z_1=80-z_2$

$\ z_2>0,4(80-2z_2)$

$\ z_2>\frac{320}{13} $

I think, I dont need the 1. Stage anymore since I already calculated the optimal share of the 80?

That is: $ z_2*= \frac{320}{13}+\varepsilon $ , where $\varepsilon $ is the smallest possible amount to add.

$ z_1*= 80-\frac{320}{13}-\varepsilon $

Questions:

Is my categorization regarding envy and fairness correct?
Is it of any importance for calcutlations that $\beta>\alpha$?
Is it correct that$\ z_2>z_1$ will never be fullfilled?
Is my subgame Nash equilibrium correct?
Did I miss something?
Is there a more easy approach, if preferences towards envy and fairness are given?

I would be very greatful for some help on this problem.

Many thanks in advance.


texts: Is Ireland setting itself up for a debt crisis?

texts:
I'm just curious about some things I read in a banking report. It says more than 20% total bank loans in Ireland are Non-performing loans which are likely to default.

  "With the NPL ratio for households at 26% for non-financial
   corporations - 44% for SMEs - and 44% for commercial real estate."

Then it goes on to say that Credit to non-financial corporations in 2015, was 267% of GDP. The current value of the bad loans is around $50 billion.

Is this a bad situation, or do the numbers make it look worse than it actually is?


texts: First paper to introduce the "principal-agent problem"

texts:
The principal-agent problem is to some extent an intuitive thing that even ancient kings must have thought about.

But what is the first journal paper that has introduced the term "principal" and "agent", and made the first formal economic analysis of the principal-agent problem as a general phenomenon?


texts: How is software treated in Gross Domestic Product calculations?

texts:
Is there a concise explanation of how software is treated in GDP calculations? It seems a bit complicated. I can only figure out part of the story:

For consumer purchases, I think all software spending shows up as final consumption, whether it's purchased shrinkwrapped software or whether it's access to a software-as-a-service (SaaS) website like TurboTax.
Business purchases confuse me more. In the US anyway, software is now counted as part of Private Fixed Investment. But I don't fully understand all the jargon, e.g. about "originals"/"copies"/"own-account"/etc.. Some of the main cases that need to be addressed seem to be: 1) software written purely for internal use, 2) software written by one company and sold to others, and 3) software-as-a-service (SaaS) tools like Salesforce.

Another wrinkle is open source software, or other types of software that are given away at no cost. Does that always count as $0 in GDP? Does the answer change depending on whether the open source project has a corporate sponsor or two that pay for much of the development work?

And what about updates to software -- Major releases? Minor releases? Bug fixes?


texts: Why do longer maturity treasuries normally have higher yields than shorter ones?

texts:
The conventional reason I see for this everywhere is that "investors take on larger risk locking up their money for longer."
This is unsatisfactory for me because of the secondary market. The price of a 30-year bond, for example, should be increasing by YTM% (yield-to-maturity) since the NPV of all future outflows increases (less time till the outflows).
So comparing a 30-year bond and a 1 month bill, why can't an investor buy the 30-year bond, hold it for a month, then sell it?
Both bond and bill are exposed to interest rate risk the same time. Furthermore, the sum of the bond's outflows + higher price, as mentioned above, should produce YTM% of value. So now since the 30-year bond's yield is higher than the 1 month bill, the investor should make more with the 30-year bond.


texts: Understanding the current monetary context in terms of the classics?

texts:
I find the current monetary context unprecedented and baffling. On one hand there is no significant inflation, or even deflation. This is occurring against a backdrop of continued dollarization; many countries that do not even do significant business with the US, like Malaysia, are basically converting their wholesale distribution and economy into dollars. At the same time growth seems stagnant with global commodity consumption remaining at similar levels year after year. State-incurred debt seems to be constantly growing, balanced by reduced commercial debt and tightening, which, I guess, is caused by low interest rates giving banks no incentive to lend.

It is hard to find any parallels to these conditions in history, sort of the black swan theory of macro economics: every age is different.

Is there any way to relate the current context to classical economics? Did the classical economists (Adam Smith, David Ricardo and John Stuart Mill) describe or analyze conditions like we have today and explain them?


texts: Deriving a Best Response Function in Baik (1994)

texts:
I'm reading a game-theory related paper*, and I'm not following the derivation of some property of the best-response functions.

Suppose I have two players $1$ and $2$, whose strategies are continuous levels of effort $x_1$ and $x_2$ respectively. The first order condition is given by for a Nash equilibrium strategy is given just standardly by $argmax_{x_1}(\pi_1)$:

$$\frac{\partial \pi_i}{\partial x_1}=\frac{\alpha\sigma h'(x_1)h(x_2)}{(\sigma h(x_1)+h(x_2))^2}-1=0$$

  Let $x_1=r_1(x_2)$ denote player $1$'s reaction function. Since it is
  derived from player $1$'s first-order condition (above), we obtain
  it's derivative by differentiating along [the above FOC]:

  $$\frac{dr_1(x_2)}{dx_2}=\frac{h'(x_1)h'(x_2)(\sigma h(x_1)-h(x_2))}{h(x_1)[h''(x_2)(\sigma
> h(x_1)+h(x_2)-2h'(x_2))^2]}$$

Note that this is not the derivative of the first equation w.r.t. $x_2$, which simply is

$$\frac{\alpha\sigma h'(x_1)h'(x_2)(\sigma h(x_1)-h(x_2))}{(\sigma h(x_1)+h(x_2))^3}=0$$

However, besides this approach, I fail to see how the equation could be obtained. Rearranging for $x_1$ to express player $1$'s BR function the conventional way seems no option here either, since the function $h$ is undefined, and the BR function would also become much messier that the one quoted.

*Some of the working out is in a technical appendix elsewhere, which I can email.


texts: Randomisation and balance in experiments

texts:
Suppose we are interested in the effect of some 'treatment' on some outcome of interest. A common practice is to select a group of people and then randomly choose some fraction (often half) to receive the treatment. The remaining people are untreated (i.e. the 'control'). As shown in (e.g.) Angrist and Pischke, the difference in mean outcomes between the groups is then an unbiased estimate of the average causal effect of the treatment.

While such a procedure does give us an unbiased estimate, it does not ensure that the treatment and control group are 'balanced' on observable criteria. For example, although on average there will be the same fraction of men in the treated and untreated groups, in our actual sample there are likely to be a higher fraction of men in one group. In such a situation, it seems natural to simply take some men from the 'overly male' group and place them in the 'overly female group' until the gender ratio is the same in both groups. (If we wanted, we could select the men we choose randomly.)

Some questions:

If we do this, will the difference in mean outcomes between treated and untreated groups remain an unbiased estimate of the causal effect?
If so, why is this not done in all RCTs?
If not, how do we trade-off the benefits of achieving 'balance' against the possible bias that we are introducing?

Optional extra: I am aware that this procedure seems rather similar to 'stratification'. However, my understanding is that, after stratifying, people do not compare mean outcomes for the treated and untreated groups (rather, they compare mean outcomes for every subsample on which they stratified, or equivalently run a regression with stratification dummies). If my proposal is indeed equivalent to stratification, my question is then equivalent to the question why we need these dummies and what are the costs and benefits of stratification.


texts: Percentage/proportion of published papers with DSGE models

texts:
I remember reading a few years back an article that showed an interesting graphic with the percentage/proportion of published papers with DSGE models across time. I've tried searching, but I get so many results related to DSGE, but not to what I'm looking for...

I'm looking for a reference with that graph.


texts:
I'm updating a document that cites this:

  As of December 2011, 67 percent of home mortgage debt was either
  securitized through agency or non-agency MBS or held on the balance sheets
  of Fannie Mae and Freddie Mac (source: Federal Reserve Statistical Release >Z.1, “Flow of Funds Accounts of the United States,” Table L.218).

So I've looked at most recent Table L.218 and I'm trying to extract the relevant data to get the percentage as of Mar. 2016.  But I want to be sure I understand what the table represents.  Does it show who holds all the mortgage debt in the US?

And does the data cited in the quote above come from rows 18, 19, and 20?
Here's the data:  https://www.federalreserve.gov/RELEASES/z1/current/z1r-4.pdf


texts:
I'm a mathematician who's trying to learn some economics from Cochrane's Asset Pricing book.

I don't have any background in economics.

In chapter 1, he derives the basic pricing equation
$$ p_t = \mathbb{E}_t \left[ \beta \frac{u'(c_{t+1})}{u'(c_t)} x_{t+1}\right] $$
as follows:

Consider the problem of
$$\max_{\xi} u(c_t) + \mathbb{E}_t \left[ \beta u (c_{t+1}) \right]$$
where
$$c_t = e_t - p_t \xi, \qquad c_{t+1} = e_{t+1} + x_{t+1}\xi$$.

The pricing equation is the first order condition of this optimisation problem.

In words, you're trying to maximise your utility by buying some number $\xi$ of an asset with a random future payoff $x_{t+1}$ that sells for $p_t$ today. $e_t$ and $e_{t+1}$ are your original consumptions levels.

It's weird to me that even though the equation is a formula for $p_t$, both sides of the pricing equation depend on $p_t$. Namely, the denominator
$u'(c_t) = u'(e_t-p_t \xi) $ is actually a 1-to-1 function of $p_t$. So I feel like the formula tells me how to find $p_t$, given that already know what $p_t$ is.

The first application Cochrane presents is the risk-free rate.
Here $x_{t+1} = R^f$ is known at time $t$ and $p_t = 1$. Therefore

$$R^f =  1/\mathbb{E}_t \left[ \beta \frac{u'(c_{t+1})}{u'(c_t)}\right] $$

But $c_{t+1} = e_{t+1}+R^f \xi$ so there's no randomness inside the expectation. How can we go on to then assume that consumption growth $c_{t+1}/c_t$ is lognormally distributed, when it appears to be a constant?

In next application, the discount factor $m = \beta \frac{u'(c_{t+1})}{u'(c_t)}$ is treated as the same across different assets. But $c_t$ and $c_{t+1}$ are my optimal consumption levels for a given single asset, so I would expect $m$ to vary across assets.

So my question is, is it possible to reconcile the derivation of the pricing equation with the way it's applied in the examples?


texts:
Say you have two countries A and B. Suppose we have a situation where country A's currency can purchase much more in country B than the other way round. What causes this phenomenen?

Is it possible to have a situation with two equally well off countries, but where one country's currency can purchase more goods abroad?


texts: What are the most used functional forms for utility in RBC literature, and why?

texts:
In the RBC/NK literature one has to define a functional form for the utility function of the representative household. What are the most used forms, and why are they used?

Any help would be appreciated


texts: Difference between yield curve and term structure of interest rate

texts:
Can somebody please explain me the difference between yield curve and term structure of interest rate?
Thanks


texts: Predicting $y$ when response variable is $\ln(y)$

texts:
My estimated model is

$$\hat \ln(y_t)=9.873-0.472\ln(x_{t2})-0.01x_{t3}$$

I'm asked to find a predictive CI at 95% confidence for the mean of $y_0$, when $x_{02}=250$, and $x_{03}=8$. We're to assume that $s^2 x_0(X^TX)^{-1}x_0^T=0.000243952$, where $x_0=(250,8)$.

I have a solution from a previous year, that goes like this:

  I find the CI of the form
  $\text{CI}(E[ln(y_0)|x_0])=\left[\hat\ln(y_t)-t_{\alpha/2}s_E,\hat \ln(y_t)+t_{\alpha/2}s_E\right]$, where $t$ is
  the $\alpha/2$ upper-quantile of distribution $t(n-k)$ and
  $s_E=\sqrt{0.000243952}$. This gives me $[7.1563,7.2175]$.

  Then the author does
  $\text{CI}(E[y_0|x_0])=[e^{7.1563},e^{7.2175}]=[1282.158,1363.077]$.

I disagree with this last step (by Jensen's inequality we'll underestimate). In Wooldridge's Intro to Econometrics, in page 212, he states that if we're sure the error terms are normal, then a consistent estimator is:

$$\hat E[y_0|x_0]=e^{s^2/2}e^{\hat \ln(y_0)}$$

So, I was thinking of doing

$$\text{CI}(E[y_0|x_0])=\left[e^{s^2/2} 1282.158,e^{s^2/2}1363.077 \right] = \left[ 1282.314,1363.243 \right] $$

Is this correct?

Also, the solution to this exercise states that $\text{CI}(E[y_0|x_0])=[624.020,663.519]$, which is far from either solution I've got.

Any help would be appreciated.

P.S: I've also read that the correction should not be used to the CI but only for the point estimation $\hat E[y_0|x_0]$


texts: About Lindahl equilibrium and Pareto Optimality

texts:
Let an economy with 20 consumers, one private good $x_2$ and one public good $x_1$. The public good is produced using the private good as input with the following technology $x_1=g(z)=z^{1/2}$, where $z$ is units of private good. TheUtility function of the consumer "i" is: $$U(x_1,x_{2i})=ln(x_1)+ln(x_{2i})$$ the aggregate endowment of private good is $\sum_{i=1}^{20}w_i=20$. My problem is en the section b)

a)Obtain the pareto optimal allocation.

Here, I have the following lagrangian:

$$Max_{x_1,x_{2i},z}20ln(x_1)+\sum_{i=1}^{20}ln(x_{2i})+\lambda_1(40-\sum_{i=1}^{20}x_{2i}-z)+\lambda_2(z^{1/2}-x_1)$$

with CPO's:

$$x_1:20/x_1=\lambda_2$$ $$x_{2i}:1/x_{2i}=\lambda_1$$ $$z:-\lambda_1+\frac{1}{2}\lambda_2z^{-1/2}=0$$ $$\lambda_1: 40=\sum_{i=1}^{20}x_{2i}+z$$ $$\lambda_2:z^{1/2}=x_1$$

Where the solution $x_{2i}*=4/3$, $x_1*=\sqrt{\frac{40}{3}}$, $z*=\frac{40}{3}$ is pareto optimal.

b)Obtain the Lindahl equilibrium allocation with $·p_i=p_j \hspace{0.3cm} \forall i\neq j$. Here each consumer maximize his utility function subject to a restriction that has to be with a personalized price; and the firm which produce the public good maximize benefits. So the problem of consumer is:
$$Max_{x_1,x_{2i}}ln(x_1)+ln(x_{2i})+\lambda_1(w_i-x_{2i}-p_ix_1)$$

The CPO's:

$$x_1:1/x_1=\lambda_1p_i$$
$$x_{2i}:1/x_{2i}=\lambda_1$$
$$\lambda_1:(w_i=x_{2i}+p_ix_1)$$

So, from the first and the second CPO: $x_{2i}=x_1p_i$ substituting in the third
$x_{2i}=\frac{w_i}{2}$ Here is my problem. In order to obtain the Pareto allocation in a) $x_{2i}=\frac{w_i}{2}=\frac{4}{3}$ so , it must be $w_i=8/3$ for each consumer $i$ but $\sum_{i=1}^{20}w_i=20\frac{8}{3}=\frac{160}{3} \neq 40$ So What is happening?


texts:
How does one get the formula for the Elasticity of real marginal costs with respect to production ($\omega$)?
Woodford(2003) at page 152  says "$\omega$ represents the elasticity of s (real marginal costs)  with respect to its first argument ( $y_t$) "
Given that $$s\left(y_{t}(j), Y_{t} ; \tilde{\xi}_{t}\right)=
\frac{v_{h}\left(f^{-1}\left(y_{t}(j) / A\right) ; \xi\right)}{u_{c}\left(Y_{t} ; \xi\right) A} \frac{1}{f^{\prime}\left(f^{-1}\left(y_{t}(j) / A\right)\right)}
$$
how is $\omega$ derived?
i really don't know where to start.


texts: Printing money to put into a Superannuation or UBI fund

texts:
It is fiscal policy to keep inflation at between 1-2% (in New Zealand at least)
Various tools are used to keep inflation in this range.

Let's say the average inflation rate is 1.25%

What would happen if a small country (this probably would not work if the US tried it) printed* enough money to push inflation to 2%. Then put that money into a global index fund (and gold as a hedge).

This fund would be earmarked for superannuation, Universal Basic Income (UBI),  'a rainy day', quantative easing during a depression, etc.

In say 50 years the fund could become quite substantial. It could then be used to offset (all?)taxes with the fund's dividends.

What is the obvious flaw in this plan of printing money to finance a long term government fund?

*Not literally print, but you know what I mean.


texts: I am looking for the most famous alternative inflation metrics  used by some acknowledged economists other then CPI and PCE.  In my opinion energy, food, education, healthcare, housing and transport is much more important then say a cellphone or a new tv, if anyone knows of any index weighting in this manner and have a similar idea around why to weight like this, please let me know.


texts: What's an example of a resource, raw material that has become scarce?

texts:
I'm interested in the elasticity price demand that predicts that as a resource becomes more scarce, it gets more expensive.

Regarding oil price this isn't clear. Is there an example of a resource that has nearly disappeared ? What was the evolution of its price ?


texts:
If you subtract M2SL - M1SL, the chart looks as follows:

The change is due to re-classification:
M1 before:

(3) other checkable deposits (OCDs), consisting of negotiable order of withdrawal, or NOW, and automatic transfer service, or ATS, accounts at depository institutions, share draft accounts at credit unions, and demand deposits at thrift institutions.

M1 after:

(3) other liquid deposits, consisting of OCDs and savings deposits (including money market deposit accounts).

M2 before:

(1) savings deposits (including money market deposit accounts);

M2 after:

(1) removed

Essentially savings deposits were moved from M2 to M1. Does it mean that M2 in the US now excludes all deposits regardless of term (e.g. a 10 year deposit or CD)? Is this because low interest rates reduced if not eliminated losses incurred from closing long-term deposits?


texts:
I would like to understand one detail of how nominal GDP of a country in a given year is calculated. It seems to me that the GDP in each country is first calculated in the national currency and then is converted to dollars. Is this correct?

If yes, how can one make this conversion if a currency can weaken of strengthen itself significantly with respect to dollar within a year?

Here is the list of such GDP's per country per year in US dollars:
http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)

For example take Russia, GDP in 2013 was 2,096,774 million dollars and in 2014 it is 2,057,000 million dollars.

Now, we know that the rouble weakened significantly in 2014, (almost twice). So it looks like Russian GDP in dollars should have dropped significantly as well. But it had not done so. Why?


texts: Relation between Inflation and Bank deposit interest rate?

texts:
I have my own novice theory that bank pays you interest for your deposit so that the value of principal amount remains the same in the future (as due to inflation, the price of the commodity will rise and our principal amount will not be able to buy the same amount of things). Is this theory true.

Because if not, then I have to way to con the banks, this is how it will be done:

As we know that Rs 10 would have bought me more good (lets say that good is 1 kg of aluminium) in the year 2010 than in 2020 (which only gets us 800 gram of aluminium for the same amount). Now instead of depositing Rs 10 cash to banks (lets say interest is 10% per decade) I will deposit an equivalent amount of aluminium. So in 2020 I will have more aluminium at a premium price (i.e. 1.1 Kg aluminium at Rs 13.75 and compare it with the usual Rs 11 for cash deposit ). I will take advantage of both interest and inflation.


texts: Why is wage-induced inflation a bad thing?

texts:
More than once, I have heard on the news how the US Federal Reserve would raise interest rates to counter the risk of inflation, even when they indicate that the potential inflation would be caused by "wage pressure".

I can understand why the wealthy disapprove of inflation -- it causes the value of their wealth to decrease -- but for the poor, this is not a significant concern.  And if (for example) the price of products are 50% due to labor, doubling the salary of that labor would only increase their cost by 50%, while the workers who were paid that salary could buy twice as many products. Mathematically speaking, then, I would expect prices to asymptotically approach some new value at a rate of e^(-k/t), not spiral into hyperinflation.

What am I missing here?  Is inflation due to wage pressure really a bad thing for the general population, or is this a case of the Federal Reserve bowing to the will of those few who would benefit the most?


texts: How does an elastic Money Demand affects the effectiveness of fiscal policy?

texts:
From my notes:

'The elasticity of Money Demand reduces the impact on the interest rate of the increase in government spending...'

My question is: if the Money Supply is inelastic, the elasticity of Md wouldn't matter, because the Md would just shift up/down by the same amount regardless of its slope, and it is the shift that determines the change in interest rate, which doesn't fit with my notes.

Maybe another way to put it is: does the elasticity of Money Demand affects how much it changes in response to a change in government spending? If so, how?


texts: Sequential game equilibrium strategy question

texts: The question asks for player B's equilibrium strategy, hence shouldn't player B choose the strategy that gives the highest payoff after player A's move? Why does player B choose 4 over 5 and 6 over 8 when he should choose the one with the highest payoff? I don't get why the answer should be B in this case...


texts: What are the values of the Laffer curve for Argentina?

texts:
According to this article, (spanish only)
Argentine companies pay 106% of taxes for their revenues
Supposedly the Laffer curve is different from country to country.  Which are the tax rate values at which you get the maximum tax revenue for Argentina? Also, is this curve supposedly to be applied to the overall taxes paid by a company, or for the taxes over a particular manufactured product?


texts: I want to know why we don't talk about the money that people have saved because they are not going to restaurants, barbershops, flying, traveling, etc.  I have heard the restaurant business is in the billions for revenue.  Wouldn't that mean that the ones that don't go the restaurant during the pandemic have that money?  So does that mean the banks have the money?  Just wondering.  Thank you.


texts:
I am currently struggling trying to find the short-run equilibrium price, output per firm, and profit per firm if $190$ firms supply the market. I am given $p=102-1/2Q$ and $C(q)=5q-6q^2+3q^3$.

First I started off with $P=MC$.
So $P=9q^2-12q+5$, thus $9q^2-12q+(5-P)=0$.

Then, I Used the quadratic equation and came out with $q=2/3+1/3\sqrt{p-1}$.

Then I did $Q=nq=190\left(2/3+1/3\sqrt{p-1}\right)$.

Equating demand and supply I obtained $P\approx 2.32$ and then plugged back into $q\approx2/3+1/3\sqrt{2.32-1}$ to get $q\approx1.05$

Finally, I plugged $q$ and $P$ into $\pi=q\cdot P-C(q)$ and came up with $\pi\approx 0.33$. This just seems crazy to me! I have tried for the past few days over and over again to understand, but I am completely lost.

Any help would be greatly appreciated!


texts: If I find the GDP deflator (i.e., price level) for a given time series, can I then find real consumption given nominal consumption?

texts: I've found the gdp deflator for a country over a 25 year span. If I have nominal consumption for the same time series, then I just have to divide nominal consumption by the p-level I found with the deflator right?


texts: How is a country's interest rate and inflation linked?

texts:
India has just dropped its lending rates. Is the drop in interest rates linked to the country's inflation?

Link to article - http://in.reuters.com/article/2015/09/14/india-economy-inflation-idINKCN0RE04V20150914


texts:
I have been stuck on this question for about two days and can find no way out (apologies if the question seems really simple as I haven't started university yet). I would strongly prefer it if this can be solved using the Lagrange multiplier. Thanks.

There are two individuals, A and B, in an economy. Each derives utility from his
consumption, C, and the fraction of his time spent on leisure, l, according to the
utility function:
U = ln(C) + ln(l)
However, A is made very unhappy if B’s consumption falls below 1 unit, and he
makes a transfer, G, to ensure that it does not. B has no concern for A. A faces a
wage rate of 10 per period, and B a wage rate of 1 per period.
(a) For what fraction of the time does each work, and how large is the transfer G?


texts: What is the reasoning behind the sharp fall of oil prices starting in mid 2014?

texts:
Things I have considered:

Poor economic conditions around the world could have caused an unpredicted decrease in demand. The resulting surplus has begun driving prices down.
This could be exacerbated by a decade of record-high prices that spurred massive investment that changed supply capacity. I know part of this could also be a result of technological innovation that, over the last few years, has changed supply capacity. Add to this the relatively recent discovery of new pockets of oil/natural gas here that producers have begun exploiting.
Consumer's expect prices to continue falling and so they forgo purchasing fuel if possible. This slowdown in demand can actually help fuel that expected price drop. This could contribute to a steady downward pressure, I think.
Geopolitical relations between America, Saudi Arabia, Russia and Iran. I know that Saudi Arabia and co. could slash production in an attempt to remove the excess supply and drive prices of oil up again.
America is now a (the?) leading oil producer world wide and the USA do not import nearly as much oil as it once did. The fact that the USA are using oil extracted and refined domestically has obvious implications etc. An interesting question is how OPEC's recent announcement to not cut production and instead let prices stay low might affect domestic production where things like horizontal drilling and fracking drive up the cost of extraction.

I would really appreciate a substantiated walkthrough of what has caused this very sharp turn around in oil prices. I know the last decade was a time of record highs...so why now the massive landslide in the value of oil?

I should say I am hoping to hear from economists who perhaps have some specialized knowledge here. I do have an undergrad degree in economics and I have read and am familiar with most of the general arguments.  I am looking for a well substantiated and thorough answer that will deepen my understanding of this issue.


texts: Trying to show result of prisoners dilemma simulation through supply/demand graph

texts:
I made up this situation where candidate $A$ and $B$ are vying for a job. They can accept wage $x$ or undercut this to agree to work for $x-k$ where $0<k<x$. My point was that eventually they kept undercutting because they didn't want to get beat out of a job and thus they ended up being paid $0$ (evol. of internships).

I tried to show how this looks in a supply and demand graph with the equilibrium being $0$ but it wasn't making sense to me. Is it illogical to try to connect the two?

Here were my thoughts:
If we had labour supply (employees) and labour demand (employers), and then the price employees are willing to work for decreases so the supply curve shifts to the right. But then this would make employers want to hire more people which would make the demand curve shift up to the right. If this keeps repeating how would we get that people are working for a price of $0$? And then it also doesn't make sense that if they're working for less the quantity supplied is greater. Or does it?

Very confused!


texts: Assumption of sufficient wealth in quasi-linear preferences

texts:
Whenever we talk about quasi-linear preferences, we assume that the consumer is sufficiently wealthy. As far as I understand is that we need that assumption in order to obtain an interior solution.
But what would the economic intuition behind that premise be? Is it that the consumer would not consume anything of the nonlinear good in case of insufficient wealth?


texts: Are there economic studies surrounding the efficacy of gun control?

texts:
In light of a recent mass shooting in Nova Scotia, the Prime Minister of Canada intends to ban a lot of firearms. I have seen both sides of this debate, notably whether or not gun control is an effective strategy to reducing violent crime. Gun control itself is a supply-reduction policy whereas loosening gun control coupled with more severe penalties for offenders who use guns is a demand-reduction policy. Both sides of this have valid arguments, though, which one is more effective? This is an economics policy question.

I have not seen very much attention given to this topic from economics. Is there a well defined economics literature surrounding gun control and its efficacy (does it work)? Maybe econometric studies examining gun control laws imposed in certain states as natural experiments?

I am not simply asking "Does gun control work" as this would attract opinion-based answers. I am looking for studies that have examined the effects to better inform myself on the subject, on which I have not formed an opinion.


texts: Can anyone explain why the Swiss balance of payments is not balanced (real data)?

texts:
While doing a little research I went to the Swiss National Bank's website and downloaded their data on the Swiss balance of payments.
The data is here:
https://data.snb.ch/en/topics/aube#!/cube/bopovera
However the data on the SNB website does not sum to 0. [Using the sum current account +the capital account + financial account = 0 (BoP)]
There's even a column in the data for the statistical difference but even including this there was no way that I could get the columns to balance.
I also looked on Trading Economics, it would also seem that there is no "balance" in the BoP. Switzerland would appear to be running a surplus in both accounts (see below). Ok Q1 2021 looks close. But I'd expect them to be mirror images of each other for every quarter.
Can anyone explain?


texts:
I've got a question for economics that I need help with, here is the question:

"What is meant by the supply side of economics? Define the term ‘supply’ in the context of economics and explain the factors from which it is derived."

I have answered it though but I don't understand this part in the question "Define the term 'supply' in the context of economics and explain the factors from which it is derived."

If you could help me with that, I would appreciate it.

Here is what I have answered already:
"Supply-side of economics is a theory that is built upon the concept that an increase in goods and services will increase output while also lowering prices and lead to economic growth. When companies overproduce goods, they create excess inventory which results in the prices falling and consumers buying more to offset the excess supply.
It is called “supply-side economics” because it focuses on how and what the government is able to do to increase the overall supply of goods and services created in the economy."


texts:
I want to know about Negative Interest Rate. What it is? Is it good or bad? How it affects economy and thus general people?
I have been reading these words a lot lately in business news...


texts: Is Currency Devaluation a cause or effect of interest rates?

texts:
I understand that Federal bank/Goverment can manipulate the currency market and devalue its currency by printing more money or buying foreign currencies/assets (essentially increasing the supply of home country's currency). Devaluation eventually leads to cost-push/demand-pull inflation (not necessarily though, for eg: in times of recession, this might not happen). To combat inflation, interest rate would need to increase.
However, on the other hand, another theory states that - lower interest rates gives rise to inflation and eventually leads to currency devaluation.
What I cannot get my head around is what is the cause and what is its effect? Or do they function in sync and are basically two different tools of goverment to maintain the balance and control the economy?


texts: Wouldn't abolition of cash give rise to a substitute currency?

texts:
Some countries (e.g. Sweden and Denmark) plan to abolish physical cash in the future and restrict the use of cash to electronical deposits. One of the reasons for this is to prevent hoarding / boost spending of money, which could be achieved by introducing negative interest rates on deposits far below zero.

However, as far as I know, in times of hyperinflation, people resorted to substitute currencies (either foreign currencies or commodities like cigarettes). Wouldn't the same happen if cash was abolished?

For example, suppose the bank charges 20% or more on deposits and you can't withdraw your money in cash (since there is no cash), and you don't want to buy stocks or property for some reason (it's risky or hard to liquidate) and suppose other people have the same problems. Wouldn't it be reasonable then to create and use some alternative currency, like cigarettes or maybe a local currency, which you can store physically?


texts: Why doesn't the price of gold drop as mining occurs that produces more gold?

texts: According to my common knowledge, the price should drop when supply increases. Why doesn't the price of gold drop slowly as more gold is produced from mining?


texts: Is there an algorithm to find as many NE as possible in this generalized second price auction?

texts:
Suppose three advertisers, I, II, III are participating in an auction for three positions for online advertising, top, middle and bottom. Assume that click per second  for a position is not affected by who poses an advertisement there. For top, the click through rate is 3 click per second, for middle, it's 2, for bottom, it's 1. But advertisers have private value per click. For I, it's \$16 per click. For II, it's \$15. For III, it's \$14. The one who submits the highest wins the top position and pays the second highest bid, second highest bidder got the middle position and pays the third highest bid. The third highest bidder end up with bottom position, but pays zero. If there's a tie, then choose the winner ramdomly by a fair dice. The strategy space for each bidder is $\mathbb{R}_{+}$.

There're a lot of NE for this game. For example, I,II,III simultaneously submit bids of, \$7 per click, \$9 per click, \$11 per click respectively. Their payoff will be $1 \times (16-0)$ dollars, $2\times (15-7)$ dollars, and $3 \times (14-9)$ dollars respectively.

$$
\begin{array}{c|l|c|r}
\hline
 &(0,7) & (7,9) & (9,11) & (11, +\infty)\\
\hline
\text{player I}& \color{blue}{16}  &  \color{blue}{16}  & 2(16-9)=14& 3(16-11)=15 \\
\hline
\text{player II}& 15 & 2(15-7)=\color{blue}{16} & 2(15-7)=\color{blue}{16}& 3(15-11)=12 \\
\hline
\text{player III}& 14 & 2(14-7)=14 & 3(14-9)= \color{blue}{15} & 3(14-9)= \color{blue}{15}\\
\hline
\end{array}
$$

How to find other NE?

Added: I want to study this numerical example, because I want to understand better the motivation of this paper.


texts: How can the GDP's growth rate be positive, when the GDP decreases?

texts:
I have question about following charts in Mozambique. Here is GDP of Mozambique in 2010-2016 - https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?end=2019&locations=MZ&start=2008. You can clearly see that GDP grows from 11 billion to 17.8 billion and then lowers in 2014-2016 from that number to 12 billion dollars. However, the GDP growth rate remains positive (between 6-7 % - https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?end=2019&locations=MZ&most_recent_value_desc=false&start=2005). How is it possible, shouldn't the "GDP growth" be negative?
I understand the growth rate isn't as easy as year-2-year change. Perhaps there is inflation (that was pretty low in Mozambique, around 2%), maybe exchange rate plays a role as well?
Thank you a lot for answer!


texts:
There are two firs in the market. They produce perfect substitutes at cost $c(y_i)=y_i/3$ for i=1,2. The demand function is $p=1-(y_1+y_2)$

Consider the Cournot competition where firms simultaneously produce their respective outputs. However firm 1 has the opportunity to announce the output it will produce to firm 2 before the firms have produced any output. How can I find the equilibrium quantities?

————————

What I have done...

For basic case, Cournot equilibrium

For firm 1,

$$max[(1-y_1-y_2)y_1-(y_1/3)]$$

FOCs

$$1-2y_1-y_2-(1/3)=0$$

$$y_1={2-3y_2\over 6}$$

For firm 2,

$$max[(1-y_1-y_2)y_2-(y_2/3)]$$

FOCs
$$1-2y_2-y_1-(1/3)=0$$

$$y_2={2-3y_1\over 6}$$

So,

$$y_1=(1/3)-(1/2)(2-3y_1/6)$$
$$y^*_1=2/9$$
$$y_2^*=2/9$$

For Stackelberg eqn in basic cases

First firm is mover first
$$max[(1-y_1-y_2)y_2-(y_2/3)]$$

FOCs
$$1-2y_2-y_1-(1/3)=0$$

$$y_2={2-3y_1\over 6}$$

For firm 1,

$$max[(1-y_1-y_2)y_1-(y_1/3)]$$

$$max[(1-y_1-({2-3y_1\over 6}))y_1-(y_1/3)]$$

FOCs

$$1-2y_1-(1/3)y_1-y_1-(1/3)=0$$

$$y_1^*=1/5$$

$$y_2^*=7/30$$

I just find only Stackelberg equilibrium and Cournot equilibrium in basic cases.

But I cannot find the part that I write above. How can I solve this part?

Thank you.

Edit: (I just post the original version of my question)


texts: Is there any index which relates population growth rate with food production growth rate?

texts:
I would like to know if there is an index which shows if food production growth is keeping pace with population growth worldwide. I know there are population growth rates available, for example for population there is a figure of 30% population growth rate for the period 1990-2010 worldwide from UN. Food production is harder to find , so I'm not sure if they are well known. I found here
Food production growth that USDA economists estimate global agricultural TFP growth averaged 1.4 percent per year between 2000 and 2007, but that doesn't help to compare it with the 1990-2010 period of population growth. So, is there any organization which keeps track of both figures or makes an index to compare both food production growth worldwide with population growth worldwide?


texts: Does neoclassical economics explain or assume private property rights?

texts:
I understand that neoclassical economics is empirical, in contrast to the a priori base of Austrian economics. I therefore wonder if neoclassical economics also explains, rather than assumes, private property rights?
Intuitively private property rights offer a greater incentive to invest than mere use rights, such as leases.
Private property also reduces transaction costs by internalising, rather than contracting, activities (theory of the firm).
Is this how private property is explained in economics?


texts: If renewable energy is now cheaper than non-renewable energy, why are we still worried about the climate?

texts:
From a recent Our World In Data post,

For the world to transition to low-carbon electricity, energy from these sources needs to be cheaper than electricity from fossil fuels.

Fossil fuels dominate the global power supply because until very recently electricity from fossil fuels was far cheaper than electricity from renewables. This has dramatically changed within the last decade. In most places in the world power from new renewables is now cheaper than power from new fossil fuels.

However, In 2019, around 89% of global primary energy still came from non-renewable technologies. In fairness, New electric generating capacity in 2020 will come primarily from wind and solar, but that's for the United States. My question concerns the whole world.
So here's my question: if renewable energy is actually cheaper than non-renewable energy, why are people still worried about climate change? Doesn't basic economics predict that when a product becomes cheaper than another product it can substitute for, then people will adopt it? Unless adoption trends are extremely slow, wouldn't this news mean we have essentially already solved climate change, and all that's left is simply for market forces to replace existing non-renewable energy sources with cheaper renewable sources?
I suspect one of four things must be true,

Adoption trends are actually extremely slow perhaps due to the large fixed cost of developing new energy plants
Renewable energy cannot completely substitute for non-renewable energy, due to issues with storage. In this case, is there any price such that people would switch to renewable carbon-neutral energy sources? Also, where can I find the cost estimate for renewable energy sources, when you include costs for storage?
The cost estimate of renewable energy given by Our World In Data is incorrect
The world will probably be carbon neutral by mid-century.


texts: Certainty equivalent and risk aversion parameter given utility function

texts:
I know this is rather easy but I do not have any example or material to really work from that I could find online.

Consider an agent with a utility index over wealth given by $$v(w) = \frac{w^{1 - \gamma} - 1}{1 - \gamma}, \gamma > 0$$
Say the agent has $10$ dollars in wealth and also owns a lottery that pays $0$ dollars with probability $2/3$ and pays $12$ with probability $1/3$. What is the certainty equivalent value and risk compensation of this lottery to an agent with risk aversion parameter $\gamma = 2$?

So for $\gamma = 2$, we have $$v(w) = \frac{w-1}{w}$$ so the expectd value of the lottery is $4$ dollars. My question is how do we calculate the Certainty equivalent and risk premium. I could not find a good example anywhere. It seems like we get at undefined part in the equation when we calculate $E[v(L)]$ where $L$ is the lottery, thus I don't see how we can find the Certainty equivalent...


texts: Demand Elasticity, Factor Substitution: Independent?

texts:
Given $ Y=f(K,L;\sigma) $, the effect on labor from a change in the price of capital can be gauged through a substitution effect and a scale effect:
\begin{align*}
\frac{\partial L}{\partial r}  & =\underset{Sub}{\underbrace{\left.
\frac{\partial L^{c}}{\partial r}\right\vert _{Y}}}%
+\underset{Scale}{\underbrace{\frac{\partial L^{c}}{\partial Y}\frac{\partial
Y}{\partial r}}}\\ \\
& =SH_{_{Labor}}\left(  \sigma+\eta\right)
\end{align*}
where $L^c$ is the conditional demand (the smooth movement along the isoquant).

This can then - as far as I can see - be also expressed as the sum of the factor substitution elasticity and the firm's elasticity of demand, weighted by the labor cost share.

But are $\eta$ and $\sigma$ independent of one another? If a firm can readily substitute factors in response to factor price changes, this will presumably impact its price elasticity of demand. Any thoughts?


texts: Which is a better intermediate micro textbook: Perloff (with calculus) or baby Varian (with calculus)?

texts:
I’m currently learning intermediate microeconomics with calculus. I know to take derivatives, partial derivatives, integrals, and multiple integrals, and I know some basic linear algebra (solving systems of linear equations using Cramer’s rule or inverse matrices, dot and cross products of vectors, gradients of vector functions). I also know some constrained optimization, through substitution and Lagrangian methods (including SOCs), though not Kuhn-Tucker conditions.

Given this background, I’m deciding between two books. One is Microeconomics: Theory and Applications with Calculus by Jeffrey Perloff (not to be confused with his other textbook, Microeconomics) and the other is Intermediate Microeconomics with Calculus by Hal Varian (not to be confused with his two other textbooks, Intermediate Microeconomics and Microeconomic Analysis). Which is better and why?

In particular, my trade-off is: Perloff has a lot of practice problems, including solved exercises, and it seems like solving lots of problems is a good way to learn micro. Varian doesn’t have nearly as many – his book of problems, Workouts in Intermediate Microeconomics, has barely any calculus. Perloff also has more examples/applications. In contrast, Varian has two main benefits. First, it has more material on mechanism design, which is interesting. Second, I’ve heard it is a good precursor to Varian’s more advanced textbook, Microeconomic Analysis.

I’m leaning toward Perloff at the moment – I have already started working through it – but would appreciate thoughts.


texts: How many major economic systems are there?

texts:
One of the biggest political debates regards the best type of economic system, which usually boils down to capitalism vs socialism.

Are there other kinds of economic systems, aside from more "primitive" kinds, like barter?

To put my question in perspective, I think of economic systems as a continuum that looks something like this:

communism | socialism | "mixed economy" | capitalism | "free market capitalism" (anything goes, rampant corruption and inequality)

So "mixed economy" would be a combination of socialism and capitalism, rather than a distinct economic system.

But that's just my opinion. There may be views that are radically different than mine


texts:
I am writing a business plan based on some old notes from a master in economics.

However I am I bit confused. Can you please confirm the following is right? (above all what's marked in bold)

Assets: anything I can sell and make money from (patents, real estates, the product I sell, etc. <-- the price I have paid them on the first place)
Liabilities: all my costs (salaries, leasings, equity given to investors, ...)
Equity: what I own (possibly not already paid) = actual money I get from selling these things, without subtracting costs (i.e. liabilities) ==> e.g.  the economic value of selling patents, real estates, my product etc. (possibly higher than the original assets cost)


texts: Inelastic offer, tax paid by seller, who supports the charges

texts: I have a small problem, I have a situation where we have a perfectly inelastic offer and a normal demand, then there is a tax that is paid by the supplier who supports the totality of the charges ? Is it not the buyer ? Since the supplier can just lower his production ? I need some explanation om this thanks and sorry for my bad english.


texts: What are estimates of the elasticity of demand for credit with respect to interest rates?

texts:
When interest rates go up one percent (not one percentage point), what happens to demand for credit? I've only been able to find two papers in this area:

Gross and Souleles (2001) study credit cards and find -1.3%
Follain and  Dunsky (1997) study mortgages and find as -1.5 to -3.5

There are two margins here of potential interest. First, shocks to one borrowing rate can shift borrowing into other sources, leading to overestimation of total debt elasticities. Second, shocks to borrowing rates can lead to a mixture of lower spending overall and more cash spending. Overall wealth is an interesting example of the other the latter, because wealthy households can choose to spend less or borrow less in response to higher rates while poor households can only spend less.

Are there papers I've missed that study this effect? Of particular interest are studies that additionally explore these effects on different sub-populations.


texts:
I've learnt to roughly draw graphs of various functions like isoquants of Cobb Douglas function, i.e., $k=√q/L$. Here first derivative is negative so it's downward sloping and second derivative is positive so convex to origin.
Now if Short-Run cost function is $C = (w/k)q^2 + (rk)$ then average cost is $AVC= (w/k)q +(rk)/q$.
First derivative is $(w/k)-(rk)/q^2$ but how do I know if it's positive or negative?


texts:
I am trying to understand how the money supply (bank deposits + currency) grows over time. That's the end goal. This is the first part of my awful struggle.
I'm superconfused, and almost everything I have read has made it worse.
Linked directly below is the first thing on this topic that made any sense to me, so I'm treating it as my starting point.
https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy
My understanding is like this:

most money creation is done by commercial banks when they make loans
*each instance of loan issuance is directly responsible for a temporary increase of the money supply
*these issuances, in aggregate, are indirectly responsible for most of the growth of the money supply over time

Question : Is what I wrote above accurate? It seems logical, but I can think of an equally logical way in which it is wrong, hence my confusion. If correct-ish, please read on:
So I am looking at the loan as having 3 parts:

part 1: The bank makes me a loan. Bank deposits increase, and thus the money supply increases.
part 2: case 1: My account is credited, and I can spend it. But I don't. I just like that it is there.
part 2: case 2: My account is credited, and I use the money to fund some productive activities today, but I do things I would have done anyways, say, tmrw. Maybe I was impatient. Or derived utility from the today-ness.
part 2: case 3: I use the loan to fund additional productive activities (more than I had initially planned for today), without changing my plan for tmrw and tmrw+.
part 3: I pay back the loan, removing this loan's direct contribution to the money supply.

I guess what I'm getting at is: Is there some connection to the bank making loans, and those loans being used to fund additional productive activities* than otherwise possible (say, given the agent's initial budget constraints), and long run growth in the money supply? Ie. You can go to the bank and get a loan pretty fast - faster than prices can change. So having that extra money means you can do more stuff. That extra stuff, is that the key here?
Or am I just way off base?
*Like, say I had an apple farm and I was planning on hiring someone, Bob, for day labor for \$200 to help me pick the apples and sell them. I thot I'd have 500 apples to sell at \$1 each. So I estimated I'd get \$500 revenue with \$200 labor making \$300 profit. But it turns out I have 750 apples to pick. Me and Bob can pick and sell a max of 500 apples, so if I want to sell more apples, I need more help, but I can't afford it and it's day labor so I need the money by the end of the day. So I borrow \$200 from the bank, and hire an additional person for the day, Helen, and we pick all 750 apples. I make \$750 revenue w \$400 labor costs, so I make \$350 profit. So bc I took out the loan and used it to do productive things, I have more profit and Helen made a day of wages.
** If someone sees fit to answer, ideally, I'd like some math. Or if there is some model that can show the players (consumers, firms, banks etc.) and their interactions, that would be great. Supergreat, even.
That is all for now


texts: Expenditure dampening policies may be used to correct a current account deficit. This involves contractionary monetary and fiscal policy. I understand that such measures induce a reduction in consumption, investment, and government spending and may lead to a fall in aggregate demand. But how can we be so sure that the rise in net exports won't counteract the fall and make AD rise? Is this not a common case? In short, what is the usual effect of dampening policies on AD?


texts: Why don't consumers subsidize monopolies?

texts:
Monopolies don't maximize welfare because they set prices above the equilibrium price, leading to dead-weight loss. It is possible for the government to provide a per unit subsidy to a monopoly until the producer's marginal cost equals the consumer's marginal benefit at the monopoly's chosen quantity, which would maximize welfare. This change would increase producer surplus and consumer surplus in this market.

To a monopolist producer, a per unit subsidy is essentially equivalent to shifting the demand curve up by the value of the subsidy. It would be possible to shift the demand curve up until the optimal quantity produced is the higher equilibrium quantity. This requires that the subsidy provider knows the complete demand curve to set the optimal subsidy.

The subsidy must come from somewhere, like a tax on a different market. It seems plausible that there would be situations where even if all tax incidence fell on consumers, consumer surplus would still be greater after the subsidization. If consumers and producers are overall better off after a subsidy, why don't consumers do this without government intervention?


texts: What is meant by "Exchange rate expectations are static" (In the Mundell-Fleming model)

texts:
When I was studying the Mundell-Fleming Model, I came across the assumptions :

1- Exchange rate expectations are static
2- Capital mobility is less than perfect

I ended up with the following questions :
Q1) Does capital mobility less than perfect implies $r \ne r^{*}$ where $r$ is the domestic interest rate and $r^{*}$ is the foreign interest rate. Or does it mean $r \neq r^{*} + \delta S^{e}$ Which is the UIRP
Q2) What is meant by "exchange rate expectations are static"?


texts: Are quantitative easing and helicopter cash really different tactics? And how does QE relate to Modern Monetary Theory?

texts:
I've been trying to get a clear understanding of exactly what economists mean by Quantitative Easing (QE). It seems to me that different people mean different things by it. I find simplistic analogies such as "it's like printing money" unhelpful.
My best guess from what I've read is that QE applies to the action of a national government that has a fiat currency selling one of its own bonds to its central bank, thereby increasing the government's reserve account balance with that bank.Since most governments hold few, if any, of their own bonds, the bond sold to the central bank would generally be newly issued specifically for this purpose. Importantly, under this meaning, QE is purely a way of the government raising funds, via an increase in its central bank account balance, and says nothing about how those funds might be spent.
I further guess that, when a govt does QE, it generally uses the increased account balance to make payments to the private sector, which may be to individuals or companies, and may be gifts (as in a cash handout to individuals) or purchase of goods or services (as in where a govt  undertakes a new infrastructure project, and uses the cash to pay workers and for materials).
This makes perfect sense to me, and seems to align with the 'printing money' analogy. But there are a number of difficulties:

Some sites describe 'helicopter cash' as an alternative to QE. That conflicts with the above understanding of QE as a way of raising funds, not of spending them. Under my understanding, one might do QE in order to finance a helicopter cash strategy.

Some sites say the aim of QE is to lower interest rates, while other sites (and sometimes even the same sites!) say that QE is used when lowering interest rates has ceased to have any effect on economic activity. One of these must be incorrect. Under my understanding, the first is incorrect.

Some sites include as QE the process of the central bank buying bonds from the private sector, which may be government bonds or private sector bonds. That is inconsistent with the above understanding. It does not increase the government's account balance and hence provides no funding for the government to increase spending. Also, it does not differ from what the central bank does as part of business as usual (BAU), which is buying and selling bonds, outright or via repo, in order to manage the cash supply and influence interest rates. The Reserve Bank of Australia calls this activity 'Open Market Operations', and it is a core component of its BAU. So if this is counted as QE it then seems to provide no new information to say that a government has commenced QE.

Some accounts of Modern Monetary Theory (MMT) say that it involves a government creating money without taxing or issuing debt. That would rule out the above notion of QE, which involves the government issuing a bond (debt) to the central bank. Does that mean that QE could not be regarded as a MMT-oriented activity? Also I struggle to work out how such a transaction would be accounted, because it would involve the central bank increasing its liabilities (the government's account balance) but not its assets. Hence it would break the fundamental principle of double-entry book-keeping.

QE as outlined above differs from ordinary deficit spending only by the party to whom the government sells the new bond. In QE it is sold privately to the central bank. In deficit spending it sold to investors, typically through a public auction. In Australia those auctions are conducted by AOFM - the Australian Office of Financial Management. Since the difference is only in who is the first owner of the new bond, I do not see why QE is regarded as radically different from what government's normally do.

I am hoping someone can help me resolve these apparent conflicts and clarify the mechanics of quantitative easing and its relationship, if any, to Modern Monetary Theory.


texts: Were there any contemporary economists (or other observers) who considered the 1920s a "New Era" of greater growth and stability?

texts:
Eichengreen (2015, Hall of Mirrors):

In the 1920s it was said that the world had entered a “New Era” of economic stability with the establishment of the Federal Reserve System and independent central banks in other countries. ...

The 1920s were known as the “New Era,” capturing the idea that the country had entered a new age not only of faster productivity growth but also of greater economic and financial stability. Shades of the “Great Moderation,” the supposed diminution of the business cycle in the lead-up to the 2008–09 crisis.

I had never heard of this "New Era" notion before. I know of Irving Fisher's infamous "permanently high plateau" quote, but I do not know of anything similar to the triumphalist "Great Moderation" messages sent out by (some) economists before 2008.
(I wonder if Eichengreen is perhaps exaggerating this in order to craft stronger parallels between the Great Depression and Great Recession.)
So, were there any contemporary economists (or other observers) who considered the 1920s a "New Era" of greater growth and stability?