texts: Why may printing trillions of dollars not lead to inflation?

texts:
By definition, inflation should be affected by the increase of the money supply. During the pandemic, there have been numerous huge monetary policies executed, e.g., quantitative easing (QE), injection liquidity into the market by increasing the monetary base.
A lot of people say that this will lead to inflation and you have to save your wealth into rather deflationary assets, like gold or bitcoin. However, a lot of economist argue that the picture is way more complex than this. For instance, a supply shock should lead to inflation, but high unemployment should keep it down.
Even if inflation would not be significant in the short term, or significantly higher than the target inflation, why wouldn't there be a huge inflation in the short to mid term?
I know once the economy is healthier, central banks can raise interest rates, and that would slow down the economy and would cause deflation. But, still, this kind of huge money printing could only be cured by very radical interest rate increases, which may not happen at all.


texts: Do carbon taxes in place today apply to carbon embedded in imports?

texts:
I’m giving the example of Sweden whose carbon tax is highly regarded and which is the highest in Europe.
Source

Sweden has a carbon tax of €110 / t. Source

This tax does not apply to installations covered by the EU ETS. The EU ETS applies to 45% of all carbon emitted in the EU and currently only prices carbon at around €25 / t.
Source1 Source2

Moreover some 45% of primary energy consumed in Sweden is nuclear and hydro making Sweden’s energy supply relatively less dependent on carbon emissions.
Source

As a consequence of the carbon tax and the high share of non-fossil energy generation Sweden’s per capita carbon emissions are low by international standards (5.5 t CO2e / capita / year).
Source

However, when measured by consumption Sweden’s per capita emissions are relatively high (15.4 t CO2e / capita / year). 58% of carbon consumed in Sweden is imported.
Source

This makes me think that there could be tendency for expensive domestic carbon emissions, especially those not covered by the cheaper EU ETS, to be substituted with carbon embedded in imports – unless the carbon tax would apply to imports as well.


texts: Why would a low wage country affect negatively the high wages of a country with trading?

texts: I was reading a book that asked this question. "Does trade with low-wage countries depress wage rates in high-wage countries?"Why did they mention specifically low-high wages countries?


texts: What is the service equivalent of an economic 'bad'?

texts:
In general conversation, the terms "goods and services" are often used together. In economics, these terms have the following meanings:
Goods:

In economics, goods are items that satisfy human wants and provide utility, for example, to a consumer making a purchase of a satisfying product.

Services:

A common distinction is made between goods which are transferable, and services, which are not transferable.

In economics, a 'bad', is:

the opposite of an economic good. A 'bad' is anything with a negative value to the consumer

Is there any more specific term for a 'bad' (something with negative value to the consumer) which is strictly a service?


texts: Devising a model for inflation for a closed points system

texts:
I am working on a project that involves points. The idea is that users will earn points and redeem them for certain rewards.

The means via which the users earn are fairly limited (They can attend a seminar, a class, etc).

I want to make sure that once the circulation of points increases, we want to employ an inflation model that increases the prices of the items.

I am a complete newbie to economics and have no clue how can this be achieved.

My initial attempts consist of models where the prices increase flatly with respect to the circulation amount - but that wouldn't be fair for people who haven't made any significant contribution to the circulation.

Second thought was to take into consideration the "average" increase in the users' income over a period and increase by that fator. But that is when it hit me - that way, the target prices will keep on increasing and no users will be able to redeem any rewards.

Should I explore per-capita income route? Is there a "text-book" model that I can read about and potentially implement to make a fair system that also motivates people to increase their income?


texts: Is a loan lent with a rate under the inflation rate free money?

texts:
Suppose we have an inflation in a country with an annual 2% and we get a loan for an annual 1% (real interest). Is the money we receive free?
This is a common practice in some European countries, where the mortgages are around 1% fix rate plus the Euro Interank Offered Rate.
If so, why? Are the banks loosing money by lending in such low rates?


texts: What causes the dramatic decline in container traffic on the Main-Danube canal?

texts:
The Main-Danube Canal is an essential link in the main waterway connecting Western and Easter Europe:

Source: Wikimedia Commons
Freight traffic, in particular container traffic, has seen dramatic decline since it was finished in 1992:

Source: Wikimedia Commons
The figure title says: Transportierte Container (TEU) auf dem Main-Donau-Kanal 1995 bis 2012, meaning Transported containers (TEU) on the Main-Danube Canal.
That is a very spectacular decline, in particular from the peak in 2000 to the low point in 2008.  I understand that water traffic has disadvantages compared to other modes, but that was as true in the 1990s as it is today.  What are some circumstances that have changed between the 1995-2000 period and the early 2010s that could explain this dramatic decline?


texts: Why does a tariff have no effect to an exporter?

texts:
I'm reading Principles of Economics, the paragraph about tariffs in a imaginary country Isoland wrote: "The Isolandian economists next consider the effects of a tariff—a tax on imported goods. The economists quickly realize that a tariff on textiles will have no effect if Isoland becomes a textile exporter. If no one in Isoland is interested in importing textiles, a tax on textile imports is irrelevant. The tariff matters only if Isoland becomes a textile importer. Concentrating their attention on this case, the econo- mists compare welfare with and without the tariff."
I don't understand why a tariff have no effect to an exporter.


texts: Will money still have any value in the fully automated world?

texts:
Moved from the personal finance & money SE:

The following question is somewhat of an existential nature and may not necessarily be related to finance or economics in the strict sense.

Reading various articles about professions, or things in general, that are progressively being automated (and it's not just about work in factories but doctors, brokers, lawyers, artists (sic!) and heck! even programmers themselves...), the development of medicine and biology (let's just grab CRISPR for example) I often imagine a world in which literally everything is automated: from agricultural production through everyday things (maybe even maid robots) to high-end jobs. Since in such a world literally everything is done for people, what is the meaning of work and money? When there is no work that people can do, I imagine that there are no costs associated with it, and consequently, everything is free for everyone. We live in times when people could completely give up using physical money (and some countries have already done so, I guess Sweden have forbidden using physical money and left only cards). Hence I can not fight the feeling that in today's world money is such a virtual thing, something that has no "real" value: it's just printed pieces of paper or stamped metal pieces, and people have agreed on how much they are worth, and that whole economy has been built on top of these ephemeral, imaginary things, and the finances basically come down to the database entry and the fact that someone could just type in the UPDATE TABLE query with the new amount of money that is in the account (of course, I know that it is impossible that there is inflation, etc.).

Summing up:
there is certainly a lot of mistakes or misunderstandings in my thinking, but I wonder what role the money will have (or any other means of payment) in the world at the moment when there will be no more jobs for humans on the planet? Is it possible that the money will still exist at all? I know that there is a fairly fierce debate on this subject and that different approaches to the topic, such as universal basic income, are invented, but again I have the impression that it comes down to the thing above, that is subtracting the amount in one cell and adding in the other.


texts: $a\geq 0$, $x\succsim y$ implies $x+a\succsim y+a$ so the preference is linear?

texts:
$\succsim$ is a continuous and local non-satiate weak order.

$x,y,a$ are vectors in $\mathbb R^n$

We say $a\geq0$ if all directions of the vector $a$ is greater or equal to zero.

We want to prove (or disprove by counterexample) that:

Suppose $x\succsim y$ implies $x+a\succsim y+a$ for any $a\geq0$ and $x,y\in\mathbb R^n$ (condition 1),

Then the preference is linear.

One definition of linear preference is that $x\succsim y$ implies $x+a\succsim y+a$ for any $x,y,a$.

Proof by contradiction. Suppose $\succsim$ is not linear then there exists $x\succsim y$ but $x+a\prec y+a$.

By non-satiation and continuity, there exists $x+\epsilon\succ y$ and $x+a+\epsilon \prec y+a$

Denote $x'=x+\epsilon$

Here if $a_i\geq 0$ or $a_i\leq 0$ for all index $i\in\{1,..,n\}$  then the proof is done.

Now suppose that $a_i\geq0$ for some indexes but $a_j\leq 0$ for some other indexes.

Let $c_i=\min\{0,a_i\}$

$v:=x'+c$ is a point such that $v\leq x'$ and $v\leq x'+a$

$w:=y+c$ is a point such that $w\leq y$ and $w\leq y+a$

If $v\succsim w$, then by condition (1) we must have $x'\succsim y$ and $x'+a\succsim y+a$, contradition!

If $v\precsim w$, then by condition (1) we must have $x'\precsim y$ and $x'+a\precsim y+a$, contradition!

Is the proof sounds rigorous?


texts: Understanding subscripts in first order conditions of dynamic optimization problems

texts:
Suppose we have a simple maximization problem as described in Equation 1.1 here or here. This leads us to the Lagrangian Equation 1.3: $$\begin{align*}\mathcal{L} &= \sum_{t=1}^\infty \beta^{t-1}\left\{u(c_t) + \lambda_t \left[ f(k_t) + (1 - \delta)k_t - c_t - k_{t+1}\right]\right\} \\ &= \sum_{t=1}^\infty \left[\beta^{t-1} u(c_t) - \beta^{t-1}\lambda_t c_t + \beta^{t-1} \lambda_t f(\mathbf{k_t}) + \beta^{t-1}\lambda_t(1-\delta)\mathbf{k_t}  - \beta^{t-1}\lambda_t \mathbf{k_{t+1}}\right]  \end{align*}
$$

When we derive the first order condition with respect to $k_{t+1}$, which is:
$$\frac{\partial \mathcal{L} (\cdot)}{\partial k_{t+1}} = 0 :   \beta \lambda_{t+1} \frac{\partial f(k_{t+1})}{\partial k_{t+1}} +  \beta \lambda_{t+1} (1 - \delta) -\lambda_t=0$$

why do we use the subscript $\phantom{.}_{t+1}$ in  $\lambda_{t+1}$ and why does $\beta^{t-1}$ becomes $\beta$? I cannot understand how the first two terms are combined with the last one ($-\lambda_t$).

The relevant terms (with $k$) of the Lagrangian in period $\phantom{.}_{t+1}$ are: $$ \beta^{(t+1)-1} \lambda_{t+1} f(k_{t+1}) +  \beta^{(t+1)-1} \lambda_{t+1} k_{t+1} (1 - \delta) - \beta^{(t+1)-1} \lambda_{t+1} k_{(t+1)+1}$$ so for this part of the sum we do not "care" about the last term when we take the derivative with respect to $k_{t+1}$. So for this period this part of the sum is $$\frac{\partial \mathcal{L}_{t+1}}{\partial k_{t+1}} = \beta^{t} \lambda_{t+1} \frac{\partial f(k_{t+1})}{\partial k_{t+1}} +  \beta^{t} \lambda_{t+1}  (1 - \delta)$$

The relevant terms (with $k$)  of the Lagrangian in period $\phantom{.}_{t}$ are:
$$\beta^{t-1} \lambda_t f({k_t}) + \beta^{t-1}\lambda_t(1-\delta){k_t}  - \beta^{t-1}\lambda_t k_{t+1}$$
so for this period the part of the sum is $$\frac{\partial \mathcal{L}_t}{\partial k_{t+1}} =  - \beta^{t-1}\lambda_t$$
Now the First Order Condition with respect to $k_{t+1}$ should be:  $$\frac{\partial \mathcal{L}_{t+1}}{\partial k_{t+1}} +  \frac{\partial \mathcal{L}_t}{\partial k_{t+1}} = \beta^{t} \lambda_{t+1} \frac{\partial f(k_{t+1})}{\partial k_{t+1}} +  \beta^{t} \lambda_{t+1}  (1 - \delta) - \beta^{t-1}\lambda_t = 0$$right?


texts: Is there an alternative to currency to facilitate exchange of goods and services?

texts:
Say I have collected a bunch of seashells. Tom wants to have my seashells. Therefore the seashells have value and I have just created wealth. And so Tom buys my seashells for \$10. But even though I have just created value, the amount of money hasn't increased. Instead, I have just caused inflation, since theres more stuff in relation to money. To compensate, the fed prints \$10 (or less) so the inflation rate remains stable and loans it to a bank.
Whats weird about this is, that even though I did all the work, tom became 10$ poorer yet both me and the bank became \$10 richer.
It almost seams money can only be used to exchange a fixed supply of things back and forth and can't actually account for creation of new wealth without "hacks" like the federal reserve.
So heres the question: Is there a system of exchange that would be similarly easy to money, but that accounts for the creation of wealth in a natural and , if possible, fair way?


texts: What does this $(\gamma _{0.clothes} + \gamma _{1.clothes} * \ kids)$ term mean in my linear demand equation?

texts:
I have the following demand equation system (expenditure ratio model):

$w_{clothes}= \beta _ {clothes} + \alpha_{clothes} * \ kids + (\gamma _{0.clothes} + \gamma _{1.clothes} * \ kids)* \ income + u_{clothes}$

$w_{food}= \beta _ {food} + \alpha_{food} * \ kids + (\gamma _{0.food} + \gamma _{1.food} * \ kids)* \ income + u_{food}$

...

$w_{other}= \beta _ {other} + \alpha_{other} * \ kids + (\gamma _{0.other} + \gamma _{1.other} * \ kids)* \ income + u_{other}$

where $\beta_i$ and $u_i$ denotes the constants and the residuals, kids is a dummy variable (1, if the consumer has got kids), and $w_{"product"}$ is the proportion of "product" consumption of the total expenditure.

My question is, how can I interpret the term, for example, $(\gamma _{0.clothes} + \gamma _{1.clothes} * \ kids)$? Is this a dummy variable, or interaction or other? It looks like an other regression's coefficients in this equation. I have no idea, please help.

Thank you for your time and help.


texts: Best terminology for "inverse" preferences

texts:
This might be related to : Symmetric and asymmetric preferences.

In your experience, what is the best terminology to denote a pair of preference relations $(R,R')$ over some set of alternatives $A$ such that, for all $a,b \in A$, $a~R~b$ implies $b~R'~a$?


texts: Is this Economic Engine Cold Start theory valid? (ie: could it work?)

texts:
First, I am not an economist so forgive me if the wording is not correct for the discipline. Second, I suspect this may end up being a "discussion" before it becomes an "answerable" question in which case comments may get moved to chat, and that is ok with me. In fact I would open a chat myself but I have no clue how that is done so I am starting with the Question...
Some years ago (maybe around 2009?) I remember reading something someone wrote on a now forgotten blog or discussion website that has stuck with me. The writer proposed an idea that they called "Cold Start Economics" (or something like that) and now that Economics.SE exists I want to ask if that idea is valid (feasible) or is flawed, and why? I am doing this from memory so if anyone else has seen the original forgive me if I have mis-remembered any of it.
There are a couple "sub-questions" that need to be addressed first...
Sub-question #1.
The proposal started with the idea that in an economic down-period people stop spending money and that causes the so-called economic engine to stall for lack of fuel. Is this idea correct?
Sub-question #2.
The proposal also was based on a belief that most retail businesses get ~80% of their sales in the last couple months of the year. I've also heard this described as "most businesses run in the red-ink until after November 1st." Is this idea really true / correct?
and now for the Main Question:
If the two points above are (mostly) valid then could the following proposal work?
Oversimplified Version: To restart the cold engine of the economy give everyone $1000 and make them spend it on tangible goods between Nov-1st and Jan-1st.
Detailed version:

No later than July 1st issue a very special "pre-paid" type debit card to every person for which a tax return was filed in the past 2 years, or who did not file taxes but graduated high-school (~age 18), or who registered for selective service (~age 19).

Just like any other plastic, the owner would call an 800 number to activate the card. They would be encouraged to do so BEFORE Nov-1st.

The quantity of activated cards in each zipcode would be available on a read-only website so that local merchants could anticipate potential sales and order products. Merchants could also offer special sales offers for users of the card.

Initially the card will be empty but on Nov-1st a one-time deposit of $1000 would be made for all cards that had been activated

The card will expire on Jan-2nd (no further purchases allowed even if there is a balance available).

The card can only be used to purchase tangible goods (so not rent or investments), which will create an increased demand for products and a positive subsequent domino-effect on manufacturing. The typical "no booze or tobacco" type limits would also apply.

The card can only be used in-person (physical signature required), which will boost the local merchant economy and feed the local tax-base. Not allowing remote (phone/online) purchases will also reduce fraud and allow more small businesses to benefit from the cashflow. Online companies will not be happy but then again these online businesses are (mostly) not collecting sales taxes so turnabout is fair play.

That's about all I remember now, but if I think of anything else I will add it.


texts:
Much of the sovereign default literature (e.g., Arellano (2008), Bulow and Rogoff (1989)), considers that sovereign default is strategic: i.e., defaults occurs if the current benefits outweigh discounted future costs.
Looking at historical default incidents, however, it seems more likely that governments default when they are hit by a shock (such as a change in commodity prices) and simply can't pay their bills.
I've looked at the literature and have had difficulty finding an analysis of which historical defaults might be considered strategic and which involuntary. Is there such a distinction in the literature?


texts: How does the U.S. Fed printing money result in a debt for future generations?

texts:
I'm unclear when I see news articles about how the U.S. Treasury will borrow $2 Trillion in the second half of 2020, why would the Fed printing money result in a debt for future generations?
I can understand that if the U.S. is actually borrowing money from somewhere, it is debt that future generations would pay back.
But in this case, it sounds like the Fed is printing new money and the U.S. is borrowing from the Fed, I'm unclear how the next or future generations get involved with this debt.


texts: Determine the homogeneity of a demand function

texts: If a demand function $X(P_X, P_y, I)$ depends only on prices and income. Is this function a homogeneous function?


texts: ln(log) of energy consumption in a econometric analysis

texts:
i'm applying a panel data analysis. I
 have four variables; real GDP, trade openness, energy price and energy consumption. I took ln (log)of trade openness,real GDP and energy price. but i cannot decide whether ln(log) of energy consumption should be taken or not. please inform me on this. Thank you

Note: Kg of oil equivalent per capita is used to measure energy consumption.

EN= energy consumption

Y=Economic growth

T= trade openness

EP=energy price

W= country fixed effect
EN=f(Y,T,EP,W)

Thank  you.


texts: Where does the value of implicit government banking guarantees end up?

texts:
Post-Lehman a widespread political agenda has established to minimize implicit government guarantees to banks. However, in the buid-up of new banking regulations, lending to small and mid-sized companies (SME) has gotten a milder treatment relative to other lending.

So there is a political wish to have some of the guarantee value ending up at SMEs. And on the other hand negative effects on subsidising risk have been claimed in the debate. But what more generally is the impact of guarantees and through which channels have they acted?

Edit: I'm kind of looking after answers like in this recent OECD paper on the end beneficiaries of banking guarantees but with a focus on if and how corporate lenders are part of the channel.


texts: Equilibrium price determination in a 2 commodity framework

texts:
Following are the set of equations describing the demand and supply of two goods X and Y:

Demand functions:
$$X_d = a_1 - b_1P_x + c_1P_y$$

$$Y_d = a_2 - b_2P_y +c_2P_x$$

$a_1,~ a_2,~ b_1,~ b_2,~ c_1,~ c_2$ are positive.

Supply functions:

$$X_s = -f_1 + g_1P_x$$

$$Y_s = -f_2 + g_2Py$$

$f_1,~ f_2,~ g_1,~ g_2$ are positive

Government imposed $t\%$ tax on $X$ and allows $s\%$ subsidy on $Y$ such that government budget remains balanced. Find out the required tax rate.
(Clearly show How the set of equations change and the equilibrium prices ?)

I replaced $P_x$ by $P_x(1+t)$ in the two demand equations as according to my understanding consumers now face a higher effective price for $X$. But I'm not sure how to incorporate the subsidy and what would be the economic logic behind such a change.


texts: Does finding real income adjust for inflation?

texts:
I have been reading from this textbook which talks about CPI and inflation

http://faculty.washington.edu/cnelson/Chap04.pdf

On pages 5 and 6, it talks about how they are deflating the nominal income using the CPI. But in page 6, they work out the percentage difference in real income between two years, and they state that is the net difference of her increase in real income and inflation

But I thought using the CPI was getting rid of the effect of inflation? What am I not undersranding?


texts:
The question is as follows: The Happyland Hospital is a monopsonist employer of nurses in the small city of Happyland. The market supply function of nurses is $S(W) = 0.1W - 100$, where $W$ is the nurses weekly wage. What is the hospital's marginal expenditure, ME? If the hospital's marginal benefit of a nurse is $2,000 per week, no matter how many nurses it hires, what is the profit-maximizing number of nurses for the hospital to hire? What will the nurse's wage be? What is the deadweight loss?

And my work so far is as follows:

$Q_s = 0.01W - 100$

$0.01W = Q + 100$

Inverse Supply: $W = 100Q + 10,000$

$ME = W+(dW/dQ)Q = (10,000 + 100Q) + 100Q$

$ME = 10,000 + 200Q$

Profit Maximization - $MB = ME$

$10,000 + 200Q = 2000$

I first derive the Inverse supply curve then use that to derive marginal revenue. Now I'm setting $MB = ME$ as this is the profit maximizing point, but the Q it yields is negative. $(-40)$. Have a feeling this is a problem point. Am I going wrong here?


texts:
Interest rates keep dropping. In my country in northern Europe we now have negative interest rate - banks have to pay the central bank for lending it their money.

I have two questions:

Why are interest rates lower than any time ever before?
Are low interest rates dangerous? The low interest rates will make it easier to borrow money for projects that would otherwise not have been possible. Irresponsible lending has proven dangerous in the past.

Are the low interest rates a way that the central banks are "artificially resuscitating" a poor economy which may finally lead to a crash?

Adding that we have never seen this situation before I ask if this situation with extremely low interest rates is dangerous?

One aspect of the question is: Are these low interest rates expected to stay low or are they considered an extreme value in a cyclic variation?


texts: Why is so much of macroeconomic theory dedicated to economic growth?

texts:
I'm an economics PhD student and throughout my macroeconomics education I've found the topic of economic growth always being discussed at great length. From an Naive perspective id expect that one of the main topics should be around the distribution of income and inequality (i.e. Bewley models) as these seem to be some of the more policy driven discussions these days (at least in the first world hemisphere).

With this in mind, why is economic growth such a core part of macroeconomic analysis?


texts: Government efforts in tackling the food crisis

texts:
I am a student taking H2 economics at the 'A' levels. Recently, in one of our case study questions in one of the tutorials on the price mechanism and its applications, we covered the food crisis. As I was taught, two features define a food crisis:

Shortage of food
Prices of food going up

The case study covered the different strategies employed by governments to tackle the crisis. These strategies included having food reserves, giving subsidies to the producers of food crops and making investments in research and development. My teacher only discussed the latter two but not the first one. It is the first strategy (having food reserves) that I am rather interested in. Upon some researching online, I've found out that having food reserves has been a strategy which has received mixed attitudes from the people over the past few decades.

In a more chaotic and less secure world, governments pursued the strategy of having food reserves as it would act as a buffer in times of crisis, preventing price from going up too much. In a more secure and peaceful global climate, governments did not pursue this strategy so rigorously as there was no incentive to do so because governments relied on the fact that they could draw on global reserves in times of shortage.

I would like to understand this policy in more detail. Why has it received criticisms by academics and why is it encouraged in today's global climate?


texts: How are housing costs reflected in factor shares of GDP?

texts:
The labour share of GDP in the UK is around 55% (Source).
Presumably all labour is supplied by households and all households need a house.
The average percentage of total monthly household income spent on private rent is around 30% (Source). For the sake of simplicity I assume that this percentage is the same for the imputed rent of owner-occupiers.
How do housing costs enter into the factor shares of GDP?
If a household earns 30k/year from labour and pays 10k/year rent, does that result in 30k x 0.7 = 21k towards labour share of GDP and 30k x 0.3 = 9k towards land/capital share of GDP?


texts: Term for rapid economic growth when starting over or in a new place

texts:
Please bear with me as I know little about general Economics, and I'm sure I am massively oversimplifying what I am trying to describe.

I'm looking for a term to describe what happens when an economy starts from a new place with sufficient resources, leading to rapid growth.

I feel like I notice a pattern when I learn about large economic changes:

New place is discovered or old place is destroyed
Things are built/rebuilt, government changes, technology is applied to resources
New place overtakes all of the old, prosperous, stable places around it

I think some factors might be:

Every country fights political, economic, cultural, and regulatory inertia even though it may be relatively advanced or well-off.
When forced to start over or start fresh, people must consider each new piece of the system as it is created intentionally, instead of following or fighting what is already in place.
The rules and policies of a lasting economy were created long ago and may no longer match with the current state of technology, leading to stagnancy.  Whereas after a large change the new rules can be made to fit the times.

Some examples I can think of are:

After World War 2, USA installed democracy in Japan, dismantled monopolies, and built schools.  Japan started over from very little, worked hard, and their economy exploded.
Europe brought technology to the vast natural resources of North America, made a new government, and well, here we are.
The city of Seattle was completely destroyed in a fire.  So they fixed their lasting sewer problem, made the roads wider and properly irrigated, built everything sturdy and fire-resistant, and the economy boomed.
Recent examples might be Singapore, Hong Kong, Shenzhen, Songdo.

Is there a term for this or common way to describe it?


texts: If an employee works overtime (and gets paid for it), how does this affect a nation's GDP?

texts:
GDP = Consumption + Government Expenditure + Investment + Exports - Imports

My cases are:

(1) If the employee is getting paid for his extra-work, his consumption would increase.

(2) This employee might take away the job of someone else --and thus his increase in spending could get nullified

By  definition, GDP = the total value of all goods and services produced.

(1) If even after working overtime, the company produces the same amount of goods / service --by definition, GDP hasn't risen at all.


texts: Why does strictly Walrasian demand with quasi-concave utility function mean that the walrasian demand having only one single consumption bundle?

texts:
In the context of Walrasian demand:

Suppose u is continuous, satisfies local nonsatiation, and is strictly quasi-concave, each $w(p, x)$ contains a single consumption bundle.

The proof I got from a textbook is:

Let $x $~$ y$ with $p^T x=p^T y =w$, $z=\alpha x + (1- \alpha) y$ with $0 < \alpha < 1$.
$p^T z =w$ because of the convexity of budget set.

Note: I understand why this makes sense graphically.

Case 1:

If $x \neq y$, strict quasi-concavity implies $u(z) > u(x) = u(y)$, thus $z$ is preferred to $x$ and $y$, hence $x, y$ are not elements of Walrasian demand.

Case 2:

Otherwise $x = y = z$.

For case 1, how can one be sure that the $z$ is unique?


texts: How Does Production Possibility Curve Shift (Partially)?

texts:
Textbook:

"Suppose that a new pizza assembly line improves the pizza production process and that the development of the new assembly line does not require the use of more of society's resources.

Although the ability to produce wings has not changed, the new pizza making technology causes the production possibilities frontier to expand outward from $PPF_1$ to $PPF_2$.

It is now possible for society to produce more of both because the improvement in pizza making technology allows a redeployment of the labor force that also increases the production of wings."

My question:

I understand that improvement in pizza making technology will allow the same amount of workers to produce more. But why is it assumed that workers can be allocated to make more wings?

If for example, at point A, we produce 200 wings and 70 pizzas with 10 workers making wings and 10 workers making pizzas. Why at point B, do we produce 220 wings and 80 pizzas? I think it could be 200 wings and 80 pizzas because how do you know that its not still 10 workers making wings and 10 workers making pizzas (just more efficiently)?


texts: Efficiency in a market that is both a monopoly and a monopsony

texts:
We know that market power in general leads inefficient outcomes (in terms of Pareto efficiency). This makes instinctive appeal as, for example, a powerful seller who has a lot of market power can benefit by restricting supply, single-handedly raising prices.
But I was wondering, what if there are not many consumers either and thus, there is also a lot of monopsony power?
In the extreme, how is equilibrium determined in a market with just one seller and one buyer? What are its efficiency properties.
I have a feeling it is just bargaining, and maybe related solutions like Nash bargaining solution might help. Am I right? I am not sure on the efficiency implications though.


texts: What is the point of considering only pure strategies in a game? How could you restrict people from thinking about mixed strategy?

texts:
In an experimental setting, how could you effectively incentivize the subjects to not to adopt mixed strategy?
I would like to re-emphasize that the question in concern is "how to prevent people from using mixed strategy" such that only pure strategies are adopted. The mixed strategies must be theoretically adoptable, and we have a mechanism to force people to think about pure strategies only. In a non-repeated game, if a person plays strategy "H", in general you don't know if it is pure strategy "H" or a mixed strategy with positive probability on "H". The current answers are very useful and well-prepared; however, what I am always looking for is a proven (either theoretically or experimentally) method that constrains the choice set from a mixture space to a doublet.
Technically, in a game theory experiment, the set of alternatives is a mixture set. I want to restrict the set of alternative to two objects, $\{H, T\}$, only.
Of course, you could just post a title of a paper which includes an incentive mechanism or an experimental design. This can be a perfect answer despite of its length. Opinions are welcome but opinions are not answers.

Let's consider a one-period game where the first player choose $H$ or $T$. The game satisfies the following two conditions:

The equilibrium is unique at $\frac{2}{3} H+\frac 1 3 T$.

If the player is restricted from choosing mixed strategy, $T$ becomes the optimal choice for player 1.

I've chatted with a few people and they all believe that it makes sense to consider those two cases separately; by "separately" they mean that, a game problem restricting the player from choosing mixed strategy also make sense, we can compare $H$ and $T$ in isolation of those mixed strategies. What is the philosophy behind this?
I, on the other hand, believe that the latter case doesn't make sense in real life: one cannot just abandon the mixed strategy completely. In an experimental setting, how could you prevent the players from adopting a mixed strategy?
One awkward way to impose this restriction, I think, is to instruct the player that it is a super game repeated for 10 times (or even life-time); you can only choose the same $H$ or $T$ for the lifetime and never change your choice. But this way, people can still think about mixed strategy.

Clarification: I am not advocating that people must use mixed strategy only. I am just saying that, I cannot find a good experiment that restricts people from including mixed strategies in their menu. Similarly, I cannot find a good experiment that restricts people from including pure strategies in their choice sets. So I think, in analysis, we must think about all strategies together, and it is pointless to consider pure or mixed strategies only.
PS: Assume the player is rational, as this is economics SE.


texts:
As the tariffs war getting escalating, I am curious about how the tariffs works on Iphone. Apple is an American company, and Iphone is its product. But manufactured by factory in China. Is there a tariff imposed on Iphone when it imported back?
Are all goods that belongs to American company but manufactured in China being included? If not, what is the driver? If it is, what percent of the tariffs are actually product from American company, isn't increasing tariffs just hurting these companies?


texts: What's the role of initial endowments in an edgeworth box?

texts:
I am trying to solve a problem but I don't see the role of initial endowments.
For instance, the question is about finding competitive equilibria.
But there is information about initial endowment.
How should I make use of it?


texts:
Consumer's problem
\begin{equation}
\max \sum_{t}\beta^{t}[c_{t}-1/2(1-x_{t})^{2}],
\end{equation}
\begin{equation}
\ s.t. c_{t}+q_{t}b_{t+1} \leq (1-\tau_{t})(1-x_{t})+b_{t},
\end{equation}
where c=consumption, x=leisure(1-x=labor), $\tau$=labor income tax,
b_{t+1}=the gov's bond, which is sold in period t at price q_{t}.
Time endowment is normalized to 1.

\begin{equation}
\ L=\sum_{t}\beta^{t}[c_{t}-1/2(1-x_{t})^{2}]+\lambda[c^{t}+q_{t}b_{t+1}-b_{t}-(1-\tau_{t})(1-x_{t})]
\end{equation}
First order conditions
\begin{equation}
w.r.t. c_{t}: \beta^{t}-\lambda=0
\end{equation}
\begin{equation}
w.r.t. x_{t}: -\beta^{t}(1-x_{t})(-1)-\lambda(1-\tau_{t})(-1)=0
\end{equation}
\begin{equation}
w.r.t. b_{t}: ?
\end{equation}


texts: When does increasing government spending lead to economic growth and when does it lead to stagflation?

texts: Obviously increasing government spending endlessly will lead to inflation. What I ask is: when can an increase in government spending, when the economy is in a recession, lead to economic growth instead of stagflation?


texts: Regression of Real GDP on Intellectual Property Products Problem

texts:
I have a question regarding regressing the log growth of Real GDP on the log growth of Intellectual Property production which contributes to GDP (through using the expenditure method of calculating GDP). My question is does this regression make sense? I used the dollar values initially and I had an absurdly high R^2. After refreshing my knowledge of Time Series regression I changed the model as well as adding a lag for the log growth of IP production. The values I get seem as if they are economically and statistically sound. However, I am not sure if my model makes sense as IP production is a component of calculating Expenditure based GDP.

My goal for this was to find out what effect IP production will have on economic growth in order to quantify some type of relation that I can add in a report regarding to a project which proposes an increase in IP production of a state.

I apologize if the question seems rather trivial. I'm possibly undertaking more then what is required for this project but I'd like to gain some knowledge through doing this. Thank you in advance.


texts: Neoclassical economic profit and growth theory versus marxian

texts:
Marxists have a very specific "profit" and "economic growth" theory. According to marxists, profit doesn't come from technology, whose cost will be reflected in the price of whatever commodity the technology owning businessman is selling. Instead, the businessman profits by paying workers low enough for their labor so that they can squeeze a profit (e.g. profit comes from living labor not dead labor (technology)). Some of this profit will in turn be used to invest in more technology which will cause capital growth (capital valorization in marxist speak).

What's the neoclassical parallel to this? It seems in neoclassical models, the market is in equilibrium so the prices reflect marginal costs and there's no "economic profit". What seems to happen is that technological advancement "happens" and this in turn creates economic growth and a new steady state/equilibrium. However, is technological innovation here merely an accident, or does it have a logic in the same way marxian "growth" has (e.g. capitalists accrue profit through living labor and then invest it in technology)?


texts: How does monopoly affect the informational role of price?

texts: It is said in the textbook "Intermediate Microeconomics a Modern Approach" by Hal Varian that monopoly affects the informational role of price. What's the mechanism?


texts: What happens to an MBS if all the underlying mortgages are fully paid back by the borrowers much before the maturity date?

texts:
What would happen to an MBS (mortgage-backed security) if hypothetically speaking all the underlying mortgages were fully paid back by the mortgagees (borrowers), much before the maturity date?
I request the repliers of this question to follow this pattern:

If the answer is w.r.t. a global context, please start it with "In a
global context..." .
If the answer is w.r.t. only a country(XYZ)'s
context, please start it with "In XYZ , ....".

Thank you in advance!!!


texts: market for lemons with signals - equilibriums vs constraints

texts:
I checked online for a question similar to this but was unable to find one.  I understand the concept of pooling and separating equilibrium and can apply it to labourers having different qualities of work but how can it be applied to the market for lemons with signalling through warranty?
Also, is there a connection between separating / pooling equilibrium and participation / self-selection constraint?  I know one is related to signalling and the other to incentives from reading Hal Varians Micro book.  But is there more?
For example lemons are worth 20 to consumer and 10 to producer and peaches are worth 60 to consumer and 50 to producer.  Suppose a 50-50 split.  This means the expected value to consumers is 40.  The pooling equilibrium means all cars would be sold at the same value and the consumer will purchase at a maximum of 40 so only lemons will be sold.  How would I find the separating equilibrium for a warranty priced at w?
Is it solved like this?
60-w > 20   peaches under warranty
20 > 60-w   lemons not under warranty
Is solving the pooling vs separating equilibrium different from solving the participating vs self selection constraint?
Thank you in advance for any help.


texts: Infinitely repeated game, discount factor and deviating from strategy

texts:
I have an exercise in Steven Tadelis Game theory Introduction book (10.2) :

Grim Trigger: Consider the infinitely repeated game with discount factor
$δ < 1$ of the following variant of the Prisoner’s Dilemma:

a) For which values of the discount factor δ can the players support the
pair of actions (M, C) played in every period?

b)For which values of the discount factor δ can the players support the
pair of actions (T,L) played in every period? Why is your answer
different from that for (a)?

I have answered (a) in this question

Now I would like to check if my (b) is correct:

In order to find which strategies the players would deviate to, we find the nash equilibrium of the game, which is $(0,0)$. So, this means that player 1 plays $B$ all the time and player 2 plays $R$ all the time , given that they would deviate to any other strategy than (T,L). So, the payoff for both of them given that they stay on $(6,6)$ is :

$6+\delta 6+\delta^2 6+...=6+\delta\sum^{\infty}_{t=1}\delta^{t-1}=6+6\delta/(1-\delta)$

And if they deviate from (6,6), they will have a payoff of $8$ the first timestep they move from (6,6) and then a payoff of $0$'s afterwards(since the opposing player(s) would play the nash equilibrium strategy, as they would not like to play the same strategy as (6,6) and be losing $-2$ all the time ) :

$8+0\delta+0\delta^2+...=8$

So, in order not to deviate from (6,6), the payoff should be greater than the deviating strategy, so we calculate for which $\delta$ values they don't deviate:

$6+6\delta/(1-\delta)\geq 8 \Leftrightarrow \delta \geq 1/4$

So, for $\delta \geq 1/4$ they stay on the (T,L) strategy forever.

The reason the answer is different from (a) (my previous question) is that the strategies they deviate from are different. So, to not deviate from 6 to 8, they would need a bigger incentive to stay on track. And for them to not deviate from 4 to 5, they wouldn't be as "motivated" to move from 4 to 5 since the difference is lower than 8-6=1, hence they need a lower incentive to stay "on track".

Would my reasoning be correct?


texts: According to Pablo Kurlat's textbook on Macroeconomics, the graph of Ch 13 compares the velocity of M1 and M2 over the years. I don't understand why M1 velocity exceeds M2 even though M2 includes more variables such as M1+ money market mutual funds + time deposits + savings deposits. I thought M2 velocity would exceed M1 velocity. I also understand that according to the Quantity equation: money supply * velocity = price level * real GDP


texts: Demand curve is same as Marginal Benefit curve?

texts:
Demand curve is same as Marginal Benefit curve  [Source: Microeconomics by Pindyck & Rubinfeld, Chapter 10, Section 5 - Monopsony]. I have only seen intuitive explanations for this statement. Can anyone prove it mathematically?
I am confused because for example is the curve is P = 10 - Q, then for Q = 1 to Q = 2, the total utility level changes for BOTH the first consumed product and the second one but the term "marginal benefit" seems to capture only the change due to second item consumed.


texts: Is public infrastructure a subsidy to capital?

texts:
https://www.researchgate.net/publication/228376470_The_Distributional_Consequences_of_Government_Spending

Very interesting little model. Government infrastructure spending increases wages in the short run by increasing the capital supply, but lowest wages and raises capital income in the long run by boosting the return on private capital. Is this result valid?


texts: What affects the interest elasticity of investment?

texts: Firstly, my understanding of the interest elasticity of investment (IEI) is that it is the responsiveness of investment to changes in interest rates. As a result, I can think of one reason why the IEI may be affected: when there's a recession, the IEI may be more inelastic because of low business confidence and a negative accelerator effect. However, I believe there are most likely other fundamental factors that affects the IEI as well, which I haven't been able to think of.


texts: Deriving First Order Condition of Hansen and Singleton (1982)

texts:
Hansen and Singleton (1982) considers the maximization of expected utility,
\begin{align*}
   \max \mathbb{E} \sum_{t=0}^\infty \beta^t U(C_t)
\end{align*}
with respect to the budget constraint,
\begin{align*}
C_t + \sum_{j=1}^J P_{jt} Q_{jt} = \sum_{j=1}^J P_{jt} Q_{j, t-1} + W_t,\ t= 0, 1, \cdots,
\end{align*}
where $C_t$ is the consumption at time $t$, $P_{jt}$ is the price of security $j$ at time $t$, $Q_{jy}$ is the amount of security $j$ at time $t$, $J$ is the number of securities and $W_t$ is the labor income at time $t$.
Then, they show that the first order condition is
\begin{align*}
P_{jt} = \mathbb{E} \bigg[ \beta \frac{U'(C_{t+1})}{U'(C_t)} P_{j, t+1}  \bigg],\ j = 1, \cdots, J.
\end{align*}
I tried to see it in the simplest case, where $t=1$ and maximize $U(C_0) + \beta U(C_1)$ with the Lagrange multiplier, but I could not get the similar first order condition. This seems to be a canonical example of non-linear GMM.


texts: What happens if a country omits the zeros of it's current money?

texts: I mean, for example, the government changes all x10000 to x1; where x equals to currency of the respected country (Dollar, for instance).


texts:
In class I was taking notes about equivalence relations defined as:

Given a generic relation $R$ on $X$, $xIy$ if both $xRy$ and $yRx$

Now, I don't really understand the following proposition:

If $R$ (the original relation) is reflexive and transitive, then $I$ (the derived relation) is reflexive, symmetric and transitive.

I understand this is an instance of $\succsim $ where the derived relations are $\sim$ and $\succ$, but the proposition holds only for the former (the strict preference obviously is not symmetric). Why is that so?

Also, how can I prove that $R$ having the two properties leads to $I$ having the same two properties + symmetry?


texts: Dornbusch model for exchange rate undershooting

texts:
Is it possible to reproduce the nominal exchange rate undershooting within the framework of the Dornbusch model?
If the government uses fiscal expansion, does undershooting happen?


texts:
This is somewhat of a follow up question to Available code for computing solutions to matching algorithms?.

In the above question, I got great answers, but all of them were for R.

I am now programming a lab experiment in otree, which means I am working with Python.

It is fairly easy to find code in python solving matching problems using the Deferred Acceptance mechanism, but I wondered if anyone knew of python code for some of the other common mechanisms in the  literature. Specifically, I am looking for python code for

The Boston mechanism (aka. Immediate acceptance)
The Top-trading cycle algorithm

In the best of the worlds, these codes would

Be compatible with the school choice model (i.e. many-to-one matching problem in which agents in one side of the "market" can be matched to many agents on the other side)
Allow for constrains on the lenght of the preference list agents can report (see http://www.sciencedirect.com/science/article/pii/S002205310900057X)

However, I would already be very happy with python code for Boston and TTC, even if the two last features are not implemented.


texts:
I would like to quantify the importance of computing power for economic aggregate output in an economy in a "simple" GDP-to-installed-CPU ratio.

The idea is to calculate a measure similar to GDP-to-capital.

The challenge lies in quantifying installed CPU power in an economy. That is, to define an adequate (and feasible) measure of installed computational facilities and have an idea how to measure this.

There have been objections to a previous version of this question on the basis that this is difficult. It might, in fact, be.

Any suggestions on parts of this problem are highly welcome.


texts: Bananas and oranges in communist countries

texts:
This is a question I wanted to ask for a long time. If you check the GDP or East Germany in 1989 and compare it to that of banana-producing countries you can see:

GDP in billions USD (1989):
East Germany: $160
Ecuador: $13.89
India: $296
China: $347.8
Philippines: $42.58
Vietnam: $6.293

GDP per capita USD (1989):
East Germany: $9679
Ecuador: $1390.21
India: $346.11
China: $310.88
Philippines: $705.58
Vietnam: $94.56

With these numbers, trading something for a banana should have been possible. The East German was better off than an Indian or Chinese, not to mention other banana-producing nations like Ecuador. I know that foreign currency was in hot demand in communist countries to repay debt, so maybe an account-deficit is the reason why the East Germans could not buy tropical fruits (i.e. they lacked the means to trade, foreign currency)? Still, these numbers make me wonder. Deals could be made in the banana-producing nation's currency. Some banana producers were/are communist. Maybe the numbers are incorrect?

EDIT: Here is a relevant quote:

  Bananas had been rare in the GDR because the imports, coming mainly
  from Ecuador, were limited due to lack of convertible currency.

Obviously, I disagree, there is always a way to pay and Ecuador was not the only producer. Note how West German ads made a permanent impression on the East Germans:

  Today the consumption of bananas in East Germany is 20 percent higher
  than in West Germany.

Also, the all-important image from those days:


texts: Can intermediate good producer's profit ever be zero in new keynesian model?

texts:
In monopolistic competition, firms are said to have zero long-run economic profit.

This makes me wonder whether profits of intermediate goods producers in New Keynesian model ever be zero.

For reference we can assume Gali's simple New Keynesian model.


texts: how to explain the term “Compensated law of demand” in a plain way?

texts: The term “compensated law of demand” I met in advanced microeconomics textbook, which appeared in “revealed Preference “


texts: Does the investment component of GDP (demand side) identity include expenditures by the government and households?

texts:
In the identity GDP=C+I+G+(X-M) does "I" include expenditures by the government and households?

For example, if a construction firm builds new residential properties and a household buys this property. Is the value of the new residential property allocated as 'firm' expenditure or 'household' expenditure and where in the identity above would these expenditures fall?

Also if a government builds a school or bridge would this go under "I" or "G"?


texts: on economic growth and Second Welfare theorem

texts:
While I was studying eighth edition of Mankiw's Macroeconomics, in chapter 9 on Economic Growth(pg. 245), the author mentions :

"Some economists have proposed increasing the incentive to save by replacing the current system of income taxation with a system of consumption taxation."

Here, the book was discussing on the topic of government policies that affect rate of saving and spur growth. My question is that doesn't this finding contradicts with Second Welfare Theorem in Microeconomics, according to which, the taxation should be on endowments and not on consumption goods so that we can have Pareto Efficient allocation(refer Varian's Intermediate Microeconomics eighth edition Ch. 31, pg 605)? Or am I wrong in superimposing the micro concept over macro?


texts: I have a dependent variable I want to examine in relation to a measure of city density. This means city population as well as geographical spread. Ideally, it would also include a measure of neighborhood clustering, or there might be a separate measure for this to use as a different regression variable. It doesn't have to be a single number - it could be a 2-tuple. I haven't learned of formal variables with associated theory for this (like Gini coefficient) so I'm wondering if there are any, because then there might be data sets already constructed that I can use with my dependent variable data set.


texts: Empirical ranking of firms based on productivity

texts:
I want to rank firms based on a metric, let's call it productivity.
Theoretically, this firm productivity measure may be well defined. Empirically, however, data that account for all dimensions of productivity are generally unavailable.
On the other hand, typically available data (e.g. output/worker) does not suffice to rank firms across industries/sectors because sector-specific differences, for instance in production technology, need to be taken into account.

What empirical approach would be both feasible in the light of data availability and non-trivial with respect to the theoretical understanding of firm productivity?


texts: Is there contradiction between automation created resilience and the full employment (with high wages)?

texts:
From the one side - full employment with the high wages (but still under the level of creating inflation threat) is nice thing and politicians and central banks are highly motivated to achieve this.
From the other side - automation created technological unemployment or underemployment (assuming that the population still maintains skills) is beneficial for the resilience - if the economy can tolerate and can function with reduced human participation (e.g. by employing automation and software) then economy can direct idle resources towards demand that arises from the needs of crisis management. E.g. today economy can afford to shift workforce and resources to the research and production and delivery of vaccines and personal protection equipment and so many adaptations. If the current economy had required the full participation of the human workforce then there would be loss of production due to lockdowns, rising inflation etc.
So - this sketch/vignette provided the contradiction between the full employment from the one side and the resilience from the other side. Is such contradiction really and issue that can attract the attention of economist and is there literature on it? Maybe there is specific term for this contradiction? This vignette also assumes that there is un-used possibilities for introduction of technology. Such possibilities always exist when human beings are forced to compete against machines to do the same job with less wages/resources. Low social support makes this human/machine competition more fierce and the under-use of technology more pronounced/


texts: A general formulation to capture price stickiness

texts:
In Wickens' macro book, page 227 (1st edition), the author states

where $p^*_t$ is the optimal price at time $t$.
The three theories he is referring to are: Taylor Model of Overlapping contracts, Calvo pricing model, and Optimal Dynamic adjustment. He says that all can be encompassed in this reformulation. The author then proceeds to show why this general formulation of inflation exhibits price stickiness, and this is the part which I don't understand what he does, specifically what he calls the partial adjustment model:

How can he deduce that equations (9.29) and (9.30) exhibit price stickiness?


texts: General government debt vs central government debt?

texts:
The IMF's Global Debt Database (Excel, Stata) lists data for:

General government debt (GG); and
Central government debt (CG).

What are the conceptual differences between these two items?

For convenience here are some of the data on a Google spreadsheet.

Quick observations:

For many countries, only data for one of these two items are listed.
And for those countries for which data for both are listed, the difference $d = CG - GG$ is small. Exceptions include Cyprus ($d = 41.2\%$) and Canada ($d = -50.6\%$).


texts: Does the minimum of short-run average cost equal the minimum of long-run average cost in the long run for perfect competition?

texts:
I was recently reading this resource (http://www2.econ.iastate.edu/classes/econ101/hallam/Comp_LongRun_HND.pdf) which states that in the long run for perfect competition, price is equal to both the minimum of the long-run average cost and short-run average cost.

I am unsure of what this is implying. The resource states that because short-run average cost equals price, it shows that there is zero economic profit, while the fact that long-run average cost equals price implies that no identical firms will want to enter or exit. Why is this so? Why does the short run average cost equaling price imply that there is zero economic profit (and not long run average cost equaling price), and why does long run average cost equaling price mean that firms will not have the incentive to enter or exit (and not short run average cost equaling price)?

Furthermore, I am unsure of whether the minimum of the short-run and long-run average cost are equal. I read online that each short-run average cost is tangential to the long run average cost at one point. What is exactly meant by by the short-run average cost curves being "tangential" at one point, does this mean that each short run average cost touches the long run average cost at one point (what exactly is meant by tangential)? And why isn't the minimum point on the short run average cost the point on the long run average cost curve, not the tangential point?

URL


texts: Could money be tied to a basic good like the gold standard?

texts:
I don't have a formal education in economics but I had an idea for creating a better and fairer currency. So the gold standard ties gold to the dollar. Gold is usually used in luxury items like jewellery and electronics. So as the economy booms demand for luxury goods increases and thus the demand for dollars. So this would reduce capital investment as dollars would be better to have right, which would reduce growth?

If you tied the dollar to say the Big Mac, then as the economy boomed the dollars relative value would decrease as people are more well off so they would be more likely to invest in businesses. Also the advantage of this system is that in a crash people are poorer so the demand for more basic goods goes up thus the dollar goes up. This would have the effect of making recessions easier on poor people as they mainly have their assets in cash. Also as means of production for the big mac become more refined, inflation will occur so it doesn't have the gold standard problem.

I might be wrong about some points above but in general could making 1 dollar always give you 1 big mac work as a standard for a currency?


texts: How to calculate Pareto Optimal outcome in a game with a Nash Equilibrium

texts:
I have at hand a two period game.

In period 1, Union decides wage offer $w$.

In period 2, firm decides on L, given wage.

Union maximizes $wL$

Firm maximizes $=(L(100-L) - wL) \quad if \quad L<=50 \quad or\quad (2500 - wL) \quad if \quad L>50 $

An SPNE of this game is: w = 50, L = 25.

I need to compute a PO allocation. I know it exsits, but I'm unsure about how to derive it from the payoffs. (Example: w = 40, L = 40. Gives both firm and union strickly greater payoffs.) But, how do I compute the set of PO outcomes from the gives functions? Or even a single PO outcome, without guesswork?


texts: Are cryptocurrencies a ponzi scheme or a bubble?

texts: Several users in this forum have addressed bitcoin and other cryptocurrencies as ponzi schemes. Bitcoins have several uses which could legitimate its value as a currency, but also have received massive investments in the last months, making it considered a highly speculative asset. Are there signs and information that proves that cryptocurrencies are being used as a (intentionally fraudulent) scheme, or should we consider it a speculative asset similar to other assets in economic bubbles that happened before?


texts: Why is deflation a likely short-term of an increase in M2?

texts:
The year-on-year growth in M2 — a broad measure of US money supply —
has rocketed this year due to the efforts of monetary and fiscal
policymakers to reduce the economic damage caused by the pandemic.
Although the severity of the shock makes deflation the most likely
short-term outcome, Mr Wilson argued that there is now a “greater
likelihood for inflationary pressures to build”.
Source: Financial Times, August 10th, 2020.

What fact in macroeconomics explain deflation being the most likely short-term outcome of an increase in M2?  A reference would be appreciated. Thank you.


texts: What is the meaning of the weights in a CES-production function?

texts:
In different paper I offen encounter two types of CES production functions

$y=\left[\left(1-\omega \right) x_{1}^{\frac{\sigma -1}{\sigma}}+ \omega x_{2}^{\frac{\sigma -1}{\sigma}} \right]^{\frac{\sigma}{\sigma -1}}$

or

$y=\left[\left(1-\omega \right)^{\frac{1}{\sigma}} x_{1}^{\frac{\sigma -1}{\sigma}}+ \omega^{\frac{1}{\sigma}} x_{2}^{\frac{\sigma -1}{\sigma}} \right]^{\frac{\sigma}{\sigma -1}}$

the only difference being the exponents of the weights.

What is the difference in meaning and interpretation of the two weights (on an intuitive and a theoretical level). Does it matter which version to use in a paper?


texts: How exactly does a stock price gap overnight?

texts:
I read Bob Baerker's answer.
I'll exemplify with KODK.   The NYSE has

Extended Hours: 4:00 pm to 8:00 p.m. ET

Opening Session: 4:00 a.m. to 9:30 a.m. ET

Pretend that on July 28 2020, KODK  last traded on the NYSE at 7:59 PM for \$9. Pretend that on July 29 2020, KODK first traded on the NYSE at 4:01 AM for \$15. How did KODK jump overnight by +6? Is the reason merely because the first trade on July 29 2020, a buyer accepted the sale price of $15?
Many thanks to user "Bob Baerker" for this chart!


texts: Typical duration of bonds purchased in QE

texts: I know that QE involves the purchasing of government bonds by the central bank "printing money" but I am curious about what the typical time to maturity of those bonds are. I.e. the typical time before the central bank is faced with the choice of "un-printing" that money (taking it out of the economy) or doing some more QE.


texts: Will the outcome of a game always be a Nash Equilibrium?

texts:
Consider this game between two players. This game has two Nash Equilibria: (U, C) and (D, R). Suppose we ask the players to play this game once. What should our prediction of the game's result be?
If Player 2 thinks Player 1 will play 'D' (since (D, R) gives player 1 gives higher payoff), then he'd play R. However, if it is resonable to think that Player 1 will play D since (D, R) gives him higher pay off, it is also reasonable to think that Player 1 will want to play C since the NE (U, C) gives him a higher payoff.
With that said, what is stopping the players from predicting the other player's move wrong? Suppose: Player 1 plays D hoping to get to the Nash Equilibrium (D, R). But Player 2 plays C hoping to the Nash Equilibrium (U, C). When they do this, they end up at (D, C)!
If the outcome of a single stage game will not always be the Nash Equilibrium, then why do we take it for a given that in the final stage of a repeated game, the players will always pick the Nash Equilibrium?


texts: Labour Market: simple macroeconomic modeling

texts:
I just started reviewing macroeconomic modeling for an upcoming entry exam, and I'm not sure about my answers in this application:

  Suppose that the economy of a country has a representative firm with
  the following production function $y = f(N) = 2N - (1/2)N^2$ knowing
  that $N$ is the size of employment.

  1) Write the profit of this firm knowing that the price of the good is $P$ and the wage is $W$.
  2) Determine the demand for labour which is the optimal size of this firm. Comment on your results.
  3) From the last question, deduce the optimal size of production which is the optimal supply in volume of the good produced by this
  firm. Comment on your results.
  4) Suppose the total supply of labour is exogenous, and is given by: $N^o = (W/P)$. Define the notion of labour market equilibrium, and
  calculate the equilibrium real wage of this economy.
  5) At this general equilibrium, calculate total production (in volume), the total real payroll, total real profits (profits deflated
  by the price), and comment on the distribution in this economy.

Admittingly, I'm still quite weak when it comes to macroeconomic modeling, I haven't yet found a good enough source so all my knowledge comes from scattered sources all over the web.

But here's my attempt:

1) I know profits are
$$\pi = Revenue -Cost \equiv P.y - W.N$$
Where P is the price of the good, y the quantity produced, W the wage and N the size of employees.

Since the quantity produced is given as a function of N I re-wrote that expression into:  $$ P.y - W.N \equiv P. 2N-(1/2)N^2 - W.N$$

Which can simplify to: $$\pi = P.N(\dfrac{-N+4}{2}-w)$$

Not sure if this is what they mean but I stopped here.

2) I've read somewhere that optimal demand for labour is reached when $Marginal Benefit = Marginal Cost$

Marginal Benefit is defined as $Marginal Product \times Price$ so in our case that should be the derivative of the Production Function (marginal product) times price, or $MB = (2-N)\times P$
I've read that Marginal Cost is the real wage $\dfrac{W}{P}$
So at equilibrium $(2-N)P = \dfrac{W}{P}$ which after some computation we get $$N=-\dfrac{W-2P^2}{P^2}$$ which should be the demand for labour at equilibrium.

3) Since N we found is (supposedly) the optimal demand for labour, and production of the good is a function of N alone, I thought we'd get the optimal size of production by inputting the expression of $N$ we just found in the production function $y$ that was given to us. After some long computations, I got: $$y=-\dfrac{W^2}{2P^4}+2$$

4) The real wage at equilibrium is obtained when Demand for Labour equals Supply for Labour. Using the exogenous expression for Labour Supply we were given this means:
$$\dfrac{W}{P}=-\dfrac{W-2P^2}{P^2}$$

Which when solved get $$p=1, w=1$$ and thus real wage would also be equal to $1$

5) Replacing values in various expressions we derived in prior questions I got: $$N=1$$  $$y=\dfrac{3}{2}$$   $$payroll=\dfrac{W}{P}.N = 1$$ $$\pi =\dfrac{1}{2}$$

Now I'd be very surprised if I had any answer right since I'm very new to this, so I'd appreciate some feedback on my answers. Also, I'd appreciate some help with the comments on the answers especially the one about the distribution.

Thanks.


texts: How do I change the base year from multiple years to one with monthly data?

texts: I have a Consumer Price Index series in monthly frequency from January 1947 to September 2017 with base year 1982-1984 (units are: Index 1982-1984=100), which, I think, means that the simple average of CPI values from January 1982 to December 1984 is equal to 100. I calculated the average of those monthly values and found that it is equal to 100.01667, which may be due to the rounding errors because the data are rounded to one decimal place. The problem is that I would like to have (still monthly) CPI with base year 2009, so that the average of its values in 2009 would be equal to 100, and I don't know how to do that. Does anyone have the idea how to shift a base year of those monthly data from 1982-1984 to 2009? It would be much appreciated. Thank you very much.


texts:
We went over a lemma in class leading up to a larger theorem. The Lemma states:

  Let $\succeq$ be a rational preference relation on $\mathscr{L}$ and let $\succeq$ admit utility representation under Von-Neumann-Morgenstern expectations. Then

  $U(\sum_{k=1}^{K} \alpha_k L_k) = \sum_{k=1}^{K} \alpha_k \ U(L_k)$
  $\succeq$ satisfies independence
  Every linear representation $V$ of $\succeq$ is a positive affine transformation of $U$. So $V = \beta U + \gamma$ where $\beta > 0$

So in proving this, here is some work so far:

1:

Let $L_k = (\Pi^k_1, \Pi^k_2, ..., \Pi_s^k)$
$$U(\sum_{k=1}^{K} \alpha_k L_k) = \sum^s_{i=1}\sum^K_{k=1}\Pi^k_i \alpha_k u_i$$ by Von-Neumann-Morgenstern, where $U(L) = \sum^s_{i=1}\Pi_i u_i $

$$\sum^s_{i=1}\sum^K_{k=1}\Pi^k_i \alpha_k u_i =  \sum^K_{k=1} \alpha_k \sum^s_{i=1}\Pi^k_i u_i = \sum_{k=1}^{K} \alpha_k \ U(L_k)$$

2:

Consider $L_1, L_2, L_3 \in \mathscr{L}$ and say $L_1 \succeq L_2$.

$L_1 \succeq L_2 \iff U(L_1) \geq U(L_2)$

Take $\alpha \in (0,1)$ and define

$$L_4 = \alpha L_1 + (1-\alpha)L_3$$
$$L_5 = \alpha L_2 + (1-\alpha)L_3$$

Say $L_5 \succ L_4$

$\implies U(L_5) > U(L_4)$
and from 1.)

$$U(L_5) = \alpha U(L_2) + (1-\alpha) U(L_3)$$
$$U(L_4) = \alpha U(L_1) + (1-\alpha) U(L_3)$$

$$\implies \alpha U(L_2) + (1-\alpha) U(L_3) > \alpha U(L_1) + (1-\alpha) U(L_3) \implies U(L_2) > U(L_1)$$

which is a contradiction, so independence must hold.

I assume 3. is some sort of "monotonicity" condition. How would I approach the proof for this condition? Any hints would be appreciated. I also am wondering what this Lemma is leading up to, so I can study for that in advance. Does anyone have any idea?


texts: What is the actual paradox in the Paradox of Thrift?

texts:
I understand most of the reasoning, but don't understand what the actual paradox here is, as I believe there can be up to three potential paradoxes:

individuals increase savings when they should be spending more to get out of the initial recession
an increase in individual saving actually ultimately decreases total savings
what benefits an individual (increased saving during a recession) actually makes the overall economy as a whole worse off.

I'm sure it's one of the three, as they were commonly repeated when I did some research on the internet, but can't quite make out which one it is.


texts: In this price model, employment grows with higher wages. Makes no sense

texts:
Using a Sraffian price model we have that, $p=(1+r)(pA+wl)$ where w (nominal wage rate), r (average profit rate) are scalars; p (market prices), l (labor input coefficients) are vectors; A (producers' goods input coefficients) is a matrix. I wanted to prove that an increase in w would lead to a decrease in A or l (i.e., p is constant because of perfect competition). For that purpose I first try to refolmulate as
$$A=\frac{p-wl(1+r)}{p(1+r)}$$     $$l=\frac{p(1-A(1+r))}{w(1+r)}$$

I take the derivates and I get,

$$\frac{\partial A}{\partial w} =- \frac{l}{p}<0$$
$$\frac{\partial l}{\partial w} =- \frac{p(1-A(1+r))}{w^{2}(1+r)}>0$$

Both results make no sense. An increase in wages should lead to an increase in machines (production goods) and a decrease in labor input. I could guess that an increase in wages would make companies invest in technological change so both A and l are reduced. I am sort of lost.

Thank you in advance


texts: Is saying that the demand is elastic or inelastic too oversimplified?

texts: As we know that elasticity varies from infinity to zero as we move along a linear demand curve, then is it correct to label any demand curve elastic or inelastic as a whole?


texts: Where can I find data on market capitalization?

texts:
I am working on Home Equity/Bond Bias and need data to calculate the indicators of Home Equity Bias. So where can I find data on market capitalization (stocks and bonds) by year for each country?

Many thanks for your help.


texts: Is there any investment model with time-varying depreciation rate?

texts:
Is there investment model with different depreciation rate.

For example, d1(depreciation rate in 1 period), d2(depreciation rate in 2 period)


texts: Definition of Pareto efficiency and prisoner's dilemma

texts:
Pareto efficiency is defined in Wikipedia as:

  Pareto efficiency or Pareto optimality is a state of allocation of
  resources from which it is impossible to reallocate so as to make any
  one individual or preference criterion better off without making at
  least one individual or preference criterion worse off.

And it has similar definitions in other sources.

Let's say in a Prisoner's dilemma game, A is confession, B is tie.

The strategies with results are:

(A, A) = -6, -6
(A, B) = 0, -10
(B, A) = -10, 0
(B, B) = -1, -1

Nash equilibrium is (A, A), also both confessing, and it's not Pareto efficient because by moving from (A, A) to (B, B), both could improve the result (form -6 to -1, also by 5).

But why is (A, B) and (B, A) not Pareto efficient? In both cases, no player can be made better off without making another player worse off.

Moving from (A, B) to (B, B) makes "player 2" better off (from -10 to -1) but makes "player 1" worse off (from 0 to -1).

Moving from (A, B) to (A, A) makes "player 2" better off (from -10 to -6) but makes "player 1" worse off (from 0 to -6).

Moving from (A, B) to (B, A) makes "player 2" better off (from -10 to 0) but makes "player 1" worse off (from 0 to -10).

So moving from (A, B) to any other combination makes one player worse off. That's the case with (B, A) too.

So why is (A, B) and (B, A) not Pareto efficient?


texts: Why is such a high US national debt not resulting in another great depression?

texts:
The chart below shows that US national debt as a percentage of its GDP is at an all time high excluding the one during WW-II. While I'm not as well informed in economics as most of the people on this forum, I know that a national debt to GDP ratio of more than 100% means that the country is strongly headed in a direction where it cannot pay back its own debt. I have two questions.

Why is such a high US national debt, expressed as a percentage of its GDP, not resulting in another great depression?
What is a good mathematical measure(s) (if it is not national debt to GDP ratio) which will provide all the information needed to gauge the chances of US entering into a great depression/bad recession?

I am dying to know the answers to the above and I would greatly appreciate it if you can answer them for me.


texts: How do you call systems in which the more you have, the more you make?

texts:
I am looking for a term for systems or dynamics in which the ability to earn a particular resource requires having a minimum of that resource available, and grows progressively or exponentially with it. I want to do some research on “you need money to make money” situations, but applied to non economic contexts as well.

I have zero background in economics, so apologies if I’m not using the proper tag (had no idea which to even use) or terms.


texts: REE with asymmetric information and Bayesian Nash equilibrium?

texts: What is the difference between a Rational Expectations Equilibrium (REE) with asymmetric information and Bayesian Nash Equilibrium  (BNE)? Since agents in both cases play some game or have a strategic behavior what is the difference? I would like an extended answer with some examples to understand it because I have not found any specific details until now (maybe I am searching in the wrong direction). Thank you in advance!


texts: Keynesian model: large and small economies equilibrium

texts:
When a large economy adopts a contractionary fiscal policy, for example, and the exchange rates are mobile, there will be a devaluation in the local currency - but there will be no full return (of the IS curve) because there is a small economy that is a mirror image of the large economy. Its exchange rate will decline (appreciation) and the equilibrium will be somewhere in the middle (international interest rate parity will take place).

Today I came across a more complex question. The large economy threatens to impose tariffs, which causes future disposable income to fall in both economies.

In my opinion, even though the two economies "push" toward devaluation of their currency, the large economy determines the move, its currency is devalued (ie appreciation in the small economy) and the equilibrium point will be to the left of the starting point (again, not a full return of the IS curve).
Another solution that came to me is that after the curves in both economies have narrowed, the international interest rate drops, and the change is over. With no effect on international trade or exchange rates.

Thanks for the help


texts: Negative Interest Rates - incentive to lend?

texts:
I was reading up on negative interest rates on Investopedia, where they clamed this:

The negative interest rate is meant to be an incentive for banks to make loans during a period in which they would rather hang on to funds.

What I don't get is, surely banks would not want to lend, if there are negative interest rates, because they would have too pay the credit, not the other way round. Surely this contradicts their statement.
I'm writing an article on this so any additional insight or detail about the topic would be great too, thanks.


texts:
How do I interpret the numbers of this table PPP conversion factor, GDP (LCU per international $) as published by the World Bank:

First of all, it's just numbers, but what do they tell (in common words). What's the difference between

Bahrein (0.19), a very rich country
United States (1.0), the benchmark or reference country
Belize (1.14), a rather poor country
India (18.15)
Armenia (197.04)
Vietnam (7,792.72), a not so poor country

Which property does Vietnam have 8,000 times more than the United States and 40 times more than Armenia? What is measured?

Side questions: What for and in which contexts are these numbers used and play an effective role? Do two decimal digits really make a difference?


texts: Is it true that the eight richest men have more wealth than the bottom 50% of world population?

texts: This statistic from Oxfam, an anti-poverty consortium, has been reported in prominent media outlets (example). Other articles dispute this statistic as misleading due to flimsy assumptions about debt (example)


texts: Labor demand and supply curves in terms of elasticities

texts:
I would like to ask for your help to derive some expressions. Let the labor demand curve be described by:
$N^D = N^D(W/P, \bar{K}), \quad N^D_{W/P}= \frac{1}{F_{NN}}< 0, \quad N^D_K = -\frac{F_{NK}}{F_{NN}} > 0$
and the labor supply curve by:
$W/P^e = g(N^S)$
My question is, how can I express these two curves in terms of elasticities? I know that the result should be:
$\frac{dN^D}{N^D} = \frac{d\bar{K}}{\bar{K}} - \varepsilon_D \Big(\frac{dW}{W}-\frac{dP}{P} \Big) \\
\frac{dN^S}{N^S} = \varepsilon_s \Big( \frac{dW}{W}-\frac{dP^e}{P^e}\Big)$
where $\varepsilon_D=-F_{NN}/(NF_{NN})$ and $\varepsilon_S = g(N)/(Ng_N)$ denote the wage elasticities of labor demand and labor supply, respectively.
Thank you for your help and time.


texts: Is Soros' theory of reflexivity aligned with normative vs positive economy dichotomy?

texts:
Soros' theory of reflexivity is well known and I'll briefly summarize it below based on his Fallibility, reflexivity, and the human uncertainty principle(2013) article. He

  proposes distinguishing between the objective and subjective aspects of reality. Thinking constitutes the subjective aspect. It takes place in the privacy of the participants’ minds and is not directly observable; only its material manifestations are. The objective aspect consists of observable events.

Soros further divides subjective aspect into two parts:

  The participants’ thinking serves two functions. One is to understand the world in which we live; I call this the cognitive function. The other is to make an impact on the world and to advance the participants’ interests; I call this the manipulative function. I use the term ‘manipulative’ to emphasize intentionality.

Soros emphasizes fallibility of human thinking:

  The complexity of the world in which we live exceeds our capacity to comprehend it.

Thus subjective attempts to comprehend reality (but can't do it perfectly due to fallibility), manipulative attempts to impact reality (but again do it imperfectly due to fallibility) so we have a reflexive loop shown below:

Soros criticizes economic theory as follows:

  .. their theories could not be falsified by testing. ... The same argument applies to the mainstream economic theory currently taught in universities. It is an axiomatic system based on deductive logic, not on empirical evidence.

And as usual remembers:

  While I was reading Popper I was also studying economic theory, and I was struck by the contradiction between Popper’s emphasis on imperfect understanding and the theory of perfect competition in economics, which postulated perfect knowledge. This led me to start questioning the assumptions of economic theory.

But at the same time he says in the same article:

  why should social science confine itself to passively studying social phenomena when it can be used to actively change the state of affairs? The temptation to use social theories to change reality rather than to understand it is much greater than in natural science. Indeed, economists commonly talk about normative versus positive economics.

It seems to me that we can associate manipulative function with normative economics and cognitive function with positive economics. Am I right?  Has this line of thought been elaborated by someone?


texts: On complements and substitutes with a CES function

texts:
Define the CES function $q : \mathbb R_+^n \to [0,1]$ by
\begin{align}
q(x) = \left[\frac{1}{n}\sum_{j=1}^n{x_j^\frac{\sigma-1}{\sigma}}\right]^\frac{\sigma}{\sigma-1}
\end{align}
where $x \in \mathbb R_+^n$ denote differentiated inputs, $\sigma \in \mathbb R_{++} \setminus \{1\} $ the constant elasticty of substitution among inputs and $q(x)$ a homogeneous output. Let $t \in \mathbb R_{++}^n$ denote the input prices.
The input demand function solves
\begin{align}
x_i(t) &= \arg\max_{x_i}\{q(x)(1-q(x)) - t \cdot x\}\\
& = \frac{1}{2t_i^\sigma q(t^{-\sigma})}\left(1-\frac{n}{q(t^{-\sigma})^\frac{1}{\sigma}}\right)
\end{align}
where $q(t^{-\sigma}) = q(t_1^{-\sigma},\ldots,t_n^{-\sigma})$ is given by
\begin{align}
q(t^{-\sigma}) = \left[\frac{1}{n}\sum_{j=1}^n{(t_j^{-\sigma})^\frac{\sigma-1}{\sigma}}\right]^\frac{\sigma}{\sigma-1} = \left[\frac{1}{n}\sum_{j=1}^n{t_j^{1-\sigma}}\right]^\frac{\sigma}{\sigma-1} \tag{1}
\end{align}
The cross price derivative reads
\begin{align}
\frac{\partial x_i(t)}{\partial t_j} = \frac{1}{2t_i^\sigma}\left(-q(t^{-\sigma})^{-2}\frac{\partial q(t^{-\sigma})}{\partial t_j}+n\left(\frac{1}{\sigma}+1\right)q(t^{-\sigma})^{-\frac{1}{\sigma}-2}\frac{\partial q(t^{-\sigma})}{\partial t_j}\right) \tag{2}
\end{align}
where the partial derivative of $(1)$ is given by
\begin{align}
\frac{\partial q(t^{-\sigma})}{\partial t_j} = \frac{\sigma}{\sigma-1}\left[\frac{1}{n}\sum_{j=1}^n{t_j^{1-\sigma}}\right]^{\frac{\sigma}{\sigma-1}-1}\frac{1-\sigma}{n}t_j^{-\sigma} = -\frac{\sigma}{n}q(t^{-\sigma})^\frac{1}{\sigma}t_j^{-\sigma}
\end{align}
such that $(2)$ becomes
\begin{align}
\frac{\partial x_i(t)}{\partial t_j} = \frac{1}{2t_i^\sigma t_j^\sigma q(t^{-\sigma})^2}\left(\frac{\sigma}{n}q(t^{-\sigma})^\frac{1}{\sigma} - 1 -\sigma\right).
\end{align}

In my application it turns out that the goods are complements for $\sigma < 1$, independent for $\sigma \to 1$ and substitutes for $\sigma > 1$.
I cannot, however, verify this via the cross price derivative.
I thus want to show
\begin{align}
\frac{\partial x_i(t)}{\partial t_j}
\begin{cases}
<0\quad \text{for }\sigma < 1\\
=0\quad \text{for }\sigma \to 1\\
>0\quad \text{for }\sigma > 1
\end{cases}
\end{align}
Does anyone has an idea how to approach the problem?


texts: I'm having trouble understanding how macroeconomic or industry data could be made stationary if there's only a limited length of time series available (e.g. 2012-2019) and I have a time series that first goes up during e.g. 2012-2015 and then goes down 2016-2019 i.e. we have just one longer economic cycle in the data. This data would not be stationary even though we take log or change percentage since first the growth is positive and then negative. How do people typically tackle these situations, do you split the time series into the different periods to get a consistent slope? Many thanks for help!


texts: How buying bonds indirectly from the government prevents the central bank from financing government deficit?

texts:
From Krugman's macroeconomic textbook (highlighting is mine):

"In an open-market operation the Federal Reserve buys or sells some of
the exist- ing stock of U.S. Treasury bills, normally through a
transaction with commercial banks—banks that mainly make business
loans, as opposed to home loans. The Fed never buys U.S. Treasury
bills directly from the federal government. There’s a good reason
for this: when central banks lend directly to the government, they are
in effect printing money to finance the budget deficit. As we’ll see
later in the book, this can be a route to disastrous levels of
inflation."

But how does this indirectness prevent the central bank from printing money to finance the budget deficit? If the government can order the central bank to buy its bonds, then it can also order the central bank to buy its bonds indirectly, during its open market operations. I fail to see how this indirectness of buying bonds serves as a safeguard against abuse of of money printing press by the government.


texts: Why does $\frac{MP_L}{MP_K} = \frac{w}{r}$?

texts:
I did a practice problem set. I was given a production function $F(K,L)$ and had to derive the firm's cost function. To do this, I used the following relationship:

\begin{equation}
\frac{MP_L}{MP_K}=\frac{w}{r}
\end{equation}

I found this formula in a set of lecture notes online. I have no idea where it comes from. I understand what $MP_K$, $MP_L$, $w$, and $r$ are but I don't know why these ratios are equal. I got the problem correct, but I want to understand this point better.

My Question:

Can someone explain why this ratio is true?


texts: Are there any nice examples of firms using attachment bias to increase profits? Examples from the academic literature or well-motivated anecdotes are both acceptable. For instance, pet stores seem to let you play with the animals and GM used to have 24 hour test drives for some of their cars. However, both of these examples are also consistent with a match quality that takes some time to learn, rather than mere attachment bias.


texts: What will be the effect on velocity of money when demand for real money increases?

texts:
Suppose that a change in government regulations allows banks to start paying
interest on checking accounts. The money stock is the sum of currency and demand
deposits, including checking accounts.
(a) How does this change affect the demand for money?
(b) What happens to the velocity of money?
(c) What will happen to the LM curve?
(d)If the price level is fixed, what will happen to the output and interest rate? Use the
IS-LM framework to explain your answer.

This was the question given. According to my understanding:
(a) interest on checking accounts means lower cost of holding money so money demand goes up.
(c)Since demand for money has gone up interest rate will go up, hence LM curve shifts to the left.
(d) due to the leftward shift of LM curve interest rate go up and output goes down.
Are my answers correct? How do I insert velocity of money in ISLM model?


texts: Rigorous solution of Stackelberg leader-follower game with N-players?

texts:
In the classical two-player Stackelberg game (sequential Cournot) we have a linear demand function $P = 1 - Q$ where $Q = \sum_0^2 q_i $, and we assume homogenous production cost $c$. By starting from the "bottom" of the game where player 2 knows player 1's chosen output and best-response reacts to it, and then moving "upwards" assuming player 1 anticipates this response, the game can be shown to have equilibrium solutions:

$$ q_1^\star = \frac{1-c}{2} $$
$$ q_2^\star = \frac{1-c}{4} .$$

We can follow the same procedure with 3, 4 or more players and discover the pattern:
$$ q_n^\star = \frac{1-c}{2^n} .$$

I have been trying to work out a rigorous mathematical proof, say by induction or other methods, to show that this has to be the case, but not managed to find any. Can anybody help please?


texts: How do I verify Philips curve empirically for recent years?

texts:
I wanted to verify the relationship between inflation and unemployment empirically, so I took data from the World Bank and used excel to correlate them.

I got a very, very bad correlation between unemployment and inflation (from 1991 to 2016). Am I doing something wrong here?

I took these two sets of indicators: (1) Unemployment, total (modeled ILO estimate) and (2) Inflation, consumer prices. Here are the links: http://data.worldbank.org/indicator/SL.UEM.TOTL.ZS and http://data.worldbank.org/indicator/FP.CPI.TOTL.ZG

I downloaded the data from here and I studied the data for the United States of America. Is the low correlation because of the fact that the market needs time to react to unemployment rates? If so how did Phillips study it in the first place?


texts:
In the Sidrausk model, money is in the long run super neutral.
Does this result only apply to the case where money and consumption are separable in the utility function, or also to the case where they are non separable.


texts:
In a recent article by David Stockman he wrote:

  Credit market debt outstanding has soared from \$85 trillion to \$200
  trillion.

What is he talking about? What is the itemization of this debt. The whole US debt is less than \$20 trillion, so I don't see where there could be \$200 trillion in debt.


texts: Finding Marshallian demands for Leontief production function with different powers

texts:
Attempting to solve a practice problem, not sure if I'm heading in the right direction since my solution seems pretty messy. Given the following utility function,

$u(x,y)=min\{x^{1/2},2y\}$, find the Marshallian demands.

My answer:

Since Leontief is perfect complements, must be the case that $x^{1/2}=2y$, substituting this into a budget constraint yields the following:

$p_x \times x + p_y \times y = w$, where w is total income. Taking $x^{1/2}=2y$ and squaring this yields $x=4y^2$. Subbing this into constraint would give:

$p_x \times 4y^2 + p_y \times y = w$, at this point I applied the quadratic formula and got a demand function for y as follows,

$$y = \frac{-p_y \pm \sqrt{p_y^2 + 16 p_x w}}{8p_x}$$

This seems messy to me, I figure I can rule out the minus side of the quadratic seems that would imply y is negative. Even if some confirmation that this is the right approach would be appreciated.

Thanks!


texts:
The SEC Investor Bulletin on Exchange-Traded Funds (ETFs) (mirror) divides ETFs into two classes: Index-Based ETFs and Actively Managed ETFs. As its name indicates, index-Based ETFs track some indexes. Unlike Index-Based ETFs, Actively managed ETFs are required to publish their holdings daily.
Does the SEC have the list or definition of indexes that an ETF is allowed to track to be classified as an Index-Based ETF? Motivation of the question: an Actively Managed ETF could try to be regarded as an Index-Based ETFs by creating some ad hoc index.


texts: Mirowski 1989 argues economics and physics have frequently informed each other's theoretical development, and neoclassical economics has the same Lagrangian and Hamiltonian formalism frequently seen in physics. I don't know how mainstream this approach has ever been, but his account doesn't make explicit what would be an action in economics. For example, I can imagine a firm's profit maximization, or a portfolio's ROI variance minimization, being formalized as an extremal action principle, but only if such quantities are expressible in the form $\int_a^bL(t,\,q,\,\dot{q})dt$ or a suitable generalization. Are there any specific examples like that?


texts: Supply & Demand Modeling in Trucking/Freight

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I have a dataset containing weight of freight, spend, mileage, and revenue per mile and I am trying to see if I can roughly create supply and demand curves from this data.
I have multiples weight by mileage as that will give me something similar to tonne-mile (indicator of demand), but I am unclear as to how to use the data to further progress this. Again, I am not looking for anything exact, but some rough idea to create supply and demand curves from these variables.


texts: Economic policies to decrease obesity (would they be effective?)

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According to the Center for Disease Control and Prevention, approximately 35% of adults in the United States are obese. I have done much research on the topic of economic policies to reduce obesity (I did a fat tax simulation for my undergraduate capstone thesis). I have run into three proposals:

1) Fat Tax: A fat tax is a tax on fatty foods or on fats themselves. Various papers I read on the topic simulated a tax on certain fatty foods. However, one paper proposed an ad valorem tax on saturated fats which seems like the most effective way to target fats. The biggest problem found with fat taxes is that fatty foods are very inelastic. This means that a tax won't change consumption much, so this doesn't seem like an effective option.

2) Thin Subsidy: A thin subsidy is pretty much the opposite of a fat tax. It subsidizes foods that are considered healthy. In the literature, this option by itself doesn't change behavior much, but a thin subsidy can also be paired with a fat tax. Basically, the government would use all of the revenues from the fat tax to subsidize healthy foods. When paired together, they are more effective than they are separately, but they still are not very effective in reducing calorie intake.

3) Gym Membership Tax Credit: This is a tax credit you can receive if you have a gym membership. I have not seen as much literature on this topic. Intuitively, if the tax credit is equal to or close to being equal to the cost of the membership, then people may have more incentive to get a gym membership. However, if the credit isn't very close to the cost of the membership, it may not cause people to go get memberships. Another problem with this method is that someone may get a membership and simply not go to the gym. I know most gyms have scanners now, so one remedy could be that the tax credit amount could depend on how many days you scan in.

Other than these three policies, are there any other policies being discussed to slow the trend of obesity? How effective can a policy be in reducing obesity rates?


texts: Why is corporation tax regarded as a direct tax?

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I understand that the classification of taxes is on ability-to-pay principle and is partly determined by the demand elasticity of the commodity or service.

That's how I understand income tax is direct, while customs tax is indirect.

But I can't really wrap my head around why corporation tax is also considered a direct tax. Can't the corporations simply raise their prices in order to shift away the incidence of tax burden?


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This is more like a homework question. I am quite a beginner. I would appreciate any help, preferably with less technical terms, that guides me in the right direction.
I went through the Wikipedia articles on Money, Debt, Government debt, Internal debt. And somehow I understood these lines from these articles.

Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context.
Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor.
Governments create debt by issuing government bonds and bills. Government debt can be categorized as internal debt (owed to lenders within the country) and external debt (owed to foreign lenders).
Internal debt or domestic debt is the part of the total government debt in a country that is owed to lenders within the country.

Perhaps, I came across hints but could not understand

How does any government "create" the currency in the first place?

Do the central banks just print some notes and offer it as a service? Say, Use our notes as an exchange medium

Or, is it something like we own the land and other assets, we put it at a value of some X amount

Is it something else?


texts: Why is depreciation added to the GDP with the income approach?

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In my economics textbook, it states that when calculating GDP using the income approach, depreciation should be added. Specifically, GDP = Employee Compensation + Taxes less subsidies on businesses + Net operating surplus on businesses + Depreciation.

The example it provides is that if some people are running a fruit stand, their capital will endure some wear and tear. As a result,"some of their income is implicitly a compensation for this wear and tear", which is depreciation.

I am confused about how adding depreciation fits into the idea of the income approach. How does the capital stock depreciating fit into the incomes of households? It seems like depreciation has nothing to do with the income of the fruit stand, for example.


texts: "Social Credit" and "Positive Money" schemes: what are the economic critiques?

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Starting with reading Robert Heinlein's Beyond This Horizon many years ago, I've run across the "social credit" schemes. Most recently, it appears to hve shown up again in the ideas on http://positivemoney.org/.

Now, while I've read a lot of economics, I am by no means an economist; on the other hand, I'm reasonably mathematically sophisticated. Looking at these schemes, they appear mathematically plausible, although how we could get there from here much less so.

But I've done a little searching and haven't found much criticism of these schemes from mainstream economists; in fact, I haven't found much discussion at all.

How would mainstream economics address these ideas?