texts: What is the logic behind that one can "grow out of debt" via increase in GDP?

texts:
As we all know the US has a big debt and increasing deficits. The head of FED J. Powell commented that the US was on an unsustainable path w.r.t some debt to GDP ratio. A few commentators I listen to argue that if the US increases it GDP, then they can "grow out of" this problem that Powell mentioned.

Could someone explain this logic to me?


texts: Question on General Equilibrium: how to write offer curves?

texts:
QUESTION:
Consider simple two-person, two-good economy in which agents’ utility functions are given by
$U_1(x_{11}, x_{21}) = min\{x_{11}, x_{21}\} $, and  $U_2(x_{12}, x_{22}) = min\{4x_{12}, x_{22}\} $.
Endowments are w1 =(30,0) and w2 =(0,20).
If neither agents can have negative consumption of either good, what is Walrasian equilibrium?
SOLUTION:
With Leontiev preferences, the indifference curves of both agents are right-angles. For agent 1 their vertices lie on the line $x_{11} = x_{21} $, whereas, for agent 2, they lie on the line $x_{22} = 4x_{12}$. These lines are respective offer curves of both agents when both prices are strictly positive. For the case when one of the prices is zero, we have following offer curves:
————
$OC_1(P_1, P_2)=$
if $(P_1, P_2) \in $ {0} $\times R_+ $ then $OC_1(P_1, P_2)= \{(x_{11}, w_{21}): x_{11} > w_{21} \}$,
if $(P_1, P_2) \in $  $R_+ \times $ {0} then $OC_1(P_1, P_2)= \{(w_{11}, x_{21}) : x_{21} > w_{11} \}$,
$OC_2(P_1, P_2)=$
if $(P_1, P_2) \in $ {0} $\times R_+ $ then $OC_2(P_1, P_2)= \{(x_{11}, w_{21}) : x_{11} > (1/4) w_{21} \} $,
if $(P_1, P_2) \in $  $R_+ \times $ {0} then $OC_2(P_1, P_2)= \{(w_{11}, x_{21}) : x_{21} > 4 w_{11} \} $,
my question is how to write this offer curve? I don't ask to solve this question. I dont understand the point where the offer curves are written. Especially I find to be difficult to write the OC2 for the second consumer. I mean writing OC_2 is especially difficult for me. If you show how to write offer curves, I will really glad. Thank you.


texts: Why does the retiree to contributor ratio matter when discussing the solvency of Social Security?

texts:
Whenever the topic of Social Security solvency comes up, the consensus is that benefits for future generations have to be cut, mainly because of two reasons:

People are living longer.
There are more people retiring than people contributing to the system.

I understand the first reason, but the second doesn't make sense to me, mathematically speaking: the retirement of an older generation should not be affected by the number of contributors in the younger generation.

In simplistic terms, if the older generation is composed of 100 people, those 100 people paid payroll taxes during their working years, so by the time they retire, there should be 100 people's worth of reserves to fund their retirement. The number of contributors in the younger generation is irrelevant.

Inflation should not be a factor either since, at least in the United States, reserves are invested in intra-government bonds.

So, why do I constantly hear the retiree to contributor ratio as a reason why Social Security benefits will have to be cut for future generations?


texts: Why doesn't QE cause the federal funds rate to continue decreasing?

texts: Quantitative easing (QE) is essentially a large-scale form of open market operations, in which the Fed buys large amounts of treasury bills of all maturities (ranging from 1-month to 30-year) and mortgage-backed securities from commercial banks. By doing so, they are crediting these depository institutions with large amounts of electronic money. Thus, wouldn't there be a large expansion of the supply of federal funds in the federal funds market as a result of QE? And hence, wouldn't the federal funds rate keep on decreasing, even below zero, as the Fed's massive "QE infinity" programme continues?


texts: Federal Reserve Leveraging of COVID-19 Fund

texts:
Reading an article in The New York Times about the COVID-19 stimulus bill, I stumbled on this detail

  the Fed can take a limited amount of funds and deploy them widely: The central bank only needs the funds as a guarantee against losses, meaning the 425 billion could be leveraged to support far bigger programs. Treasury Secretary Steve Mnuchin in Sunday seemed to suggest that the backstops could amount to 4 trillion.

As I’m someone who hasn’t much of a background in economics and who has only heard about this yesterday, can you explain how the Fed will leverage this money tenfold? Is there some sort of special, emergency authority under which this is all possible, and what would this leverage, or borrowing, entail exactly?

Thank you for your time!


texts: From Discrete to Continuous time: Total Differential

texts:
I'm trying to derive an HJB from a discrete time setting. At some point, I am left with

$$ \lim_{\Delta\to 0} \frac{v(c_{t+\Delta}, u_{t+\Delta}, t+\Delta) - v(c_{t}, u_{t}, t)}{\Delta}$$

and am not sure what to do. If $\Delta$ was only in one argument, this would be a partial differential. My hunch is that this is the total derivative in $t$, but I dont know how to show that.

How do I proceed with the expression above?


texts: is there any macro model/paper introducing money creation (ex nihilo money creation) ? I would be very interested in reading them.


texts: Why do the economic system freeze when the growth is null

texts:
When there is no growth, economy goes bad, unemployement increases, consumption decreases, even in a situation where population is not growing. Why ? We could imagine that without growth, the country will perform in 2016 the same way as in 2015: same production, same unemployement, same incomes.
What is the fundamental reason ?


texts:
Is there any article or paper that describes what Thomas Sargent thinks of New Keynesian economics/models?

I am asking this question, because we all know what Thomas Sargent thinks of Old Keynesian economics, but I can't find what he thinks of New Keynesians that involve sticky price (well, Calvo/Rotemberg/etc. methods) and imperfect competition.


texts: What type of an income distribution would allow the fastest growth and/or highest sustainability

texts:
Is there a theoretical framework to explore the question of what could be the ideal distribution of income among a population that yields growth and/or sustainability?
Let $P(m)$ be a density function of the number of people having $m$ dollars. How do I find the function $P_{\text{optimal}}(m)$ that maximizes the ability of the market to "grow". I would like to get some help figuring out the basic concepts and definitions in order to address these type of questions. Namely, how to distribute income among population in the best way for the collective.


texts:
A fictional country has 100 people. The total printed money is $2000. Ten rich people own half of it ($100 each), the remaining 90 are comparatively poor : ($\$2000 = 10  \times \$100 + 90 \times \$11.11 $)

To make things more even, the government decides to print another $2000 (no independent Central Bank here) and give them to all inhabitants, $20 each. Surely, this triggers inflation, prices double. But the net result is a redistribution of wealth, the poor are now less poor than before.

This looks as a simple progressive tax scheme which is beneficial to the poorest people. It could even be applied in some periodical and predictable way.

Of course, this is utterly stupid and cannot work - I guess. Why?


texts: How would a foreign trade multiplier behave if imports depended only on exchange rates?

texts: I was wandering if the amount of imports and exports in an economy depended only on the exchange rates then what would the foreign trade multiplier of this economy look like ?


texts: Monthly average rate of discount, 3 month Treasury bills, Sterling Vs 1 Month

texts:
I have been advised by one of my professors to use UK treasury bills for a risk free rate when calculating expected returns for stocks.

I wanted to know whether I should be using 1 month T-Bills or 3 month T-bills.

Which is better to use and why?
My lecturer mentioned that the risk free rates I download will be annualized percent figures (although % notation may or may not be there), so I would need to convert them to daily rates before I can you use them in regressions. Does anyone know where I can obtain this data? I found the 1 month and 3 month T-bills data on the Bank of England website. I need to know how to get the daily data for these T-bills.


texts: General Equilibrium: Two Consumers with Perfect Substitutes and Perfect Complements Utility Functions

texts:
I am attempting to solve a general equilibrium in pure exchange economy problem where the first consumer has an endowment of $(3, 4)$ and a utility function of $U(x) = 3x + 5y$.
The second consumer has an endowment of $(7, 10)$ and his utility function has the Leontief form $U(x) = \min(x,3y)$. I struggle to find the the Walrasian Equilibrium price ratio and also the allocation.
How would you start in order to solve this ?


texts: Negative Interest Rates - Supply-Side Policy

texts:
(This is 3rd Part of a series questions under "Negative Interest Rates")

Motivation:
I've happen to stumble on two articles, with some weeks, that the central bank(CB) of switzerland, due to Russia ruble crisis, and , has decided to use a negative interest rate for reserve deposits of banks at the CB, to facilitate the exchange rate peg. Bank of Japan(BoJ) also seems have implemented a negative interest rate, even if for different reasons(not sure...).

In all textbooks, the topic of negative interest rates is easily dismissed, or simply tought of as impossible, and so the authors work with non-negative lower bound(ex:deflation trap). Now, how is this negative rate going to affect the theory? Almost every part of the economic theory is going to be influenced by this.

Hence I'm dividing my question into several.

This part is for supply-side policy. With negative interest rates, what changes for supply-side policy(scope, effects, etc.) can we expect?

Any help would be appreciated.


texts:
I am currently reading through the 5th Edition of Economics, by Paul Krugman and Robin Wells. Right now I am learning about excise taxes and how their different aspects (government revenue, deadweight loss, reduction in consumer/producer surplus) can be represented on a supply and demand diagram.

In relation to the diagram featured in Figure 7-8 below, the book explains that “a portion of the loss to producers and consumers from the tax is not offset by a gain to the government—specifically, the two triangles B and F. The deadweight loss caused by the tax is equal to the combined area of these two triangles.”

This explanation makes a lot of sense, and is in keeping with what I have learned about deadweight loss up to this point. However, in the 'Check Your Understanding' section of this particular chapter (featured below), an answer to one of the questions seems to completely contradict this explanation. Allow me to elaborate.

Question 1f is the one that I am having trouble with.

The described supply and demand schedule and the excise tax imposed generates the supply and demand diagram featured below, where the yellow triangle represents the deadweight loss created by the imposition of the excise tax:

To clarify some of the components of this diagram, the 0.40 USD excise tax drives a wedge between the price paid by consumers and the price received by producers, equal to the value of the tax. This reduces the quantity transacted from 4 units at the equilibrium level to 2 units (represented by the vertical dashed line).

Based on the explanation of deadweight loss which I earlier cited, it seems to me that the deadweight loss here should be equal to 0.40 USD:

However, in the answers section (section S-7 of the linked PDF), it is said that the deadweight loss is actually 0.20 USD:

Though I can see the logic of subtracting the government revenue and the total surplus after the tax from the total surplus before the tax to arrive at the deadweight loss, the answer provided seems to contradict the explanation given earlier — either the deadweight loss is equal to 0.20 USD, or the deadweight loss is equal to the area of the shaded triangle (0.40 USD). From my perspective, it does not seem that these two assertions can be simultaneously true.

I hope that I have provided enough information for readers to be able to figure out whether I have made a mistake here, or whether this is actually an error in the textbook.


texts: What's good about both exports and imports of a country rising at the same time?

texts:
I recently came across a question that asks, if exports in a country rises by USD10 billion and imports rises by USD10 billion, what's good about both of these?

To my understanding, the GDP wouldn't change as Net Exports would be constant, so I'm not quite sure how exactly is this good or bad.


texts: Why are the formulas for price elasticity of supply and demand the same in intro microeconomics?

texts: I get that they are both gauging responsiveness, but I don't particularly understand why they are the same formula.


texts:
Let a utility function for a consumer be defined as $u(x_{1},x_{2})=x_{1}^{1/2} x_{2}^{1/2}$. With the budget $x_{1}p_{1}+x_{2}p_{2}=m$. With values $p_1=p_2=1, m=32$. The state now adds a tax of unit 3 on $p_{1}$ (pr. Unit $x_1$)
How does it effect utility? What does the state earn?

I got the utility before to be 16 and after to be 8 with taxes correlating to 12 pr unit $x_1$

The state now considers an income tax such that the income is now $m-T$ How much will the state earn with the new system whilst keeping the consumer indifferent? Which system is better?

I figured that i solve for the Tax in the utility function under optimal demand conditions so that i kepy utility equal to 8. This gave me 16 units of income tax.

How does one do the last part mathematically. I figure the income tax is better for the consumer but how can i show it mathematically?


texts: Optimal monetary policy under commitment & FOCs

texts:
Clarida, Gali, Gertler(1999) show the optimal monetary policy problem of central bank for minimizing loss function under "Commitment"

 is a output gap,  is a inflation rate, ~AR(1) is a supply shock.

I want to know why rational expectations term,  , is omitted in the FOCs of the lagrangian above the Appendix.

For some variable ,  does not imply .

Thank you for your answer.


texts: Paying Filipino workers in USD. What should the inflation rate be?

texts:
I'm not sure where to ask and, since this is not Personal Finance, I'm gonna ask it here.

Here's my situation: for the past 2 years, I hired and trained a team of Filipino workers. They are paid in USD and receive a 8% raise every year and x% for inflation. The workers then take their pay and exchange it for PHP.

When I came up with the analysis 2 years ago, I used the inflation data for Philippines to figure out the yearly inflation raise.

However, this year's inflation rate was 5.5%, which is ungodly high IMO; which got me thinking. Then, it occurred to me that I should have used the US Inflation rate the whole time!

My logic is that, if the price of goods increase in the Philippines, it wouldn't matter because the USD to PHP exchange rate would change so that US$1 would be worth more Pesos. If I recall correctly, Russian was experiencing a lot of inflation a few years ago. The price of the Ruble dropped; so, if Russian employees were paid USD, they were safe from the inflation, even if they exchanged their money every pay period.

Is this logic correct? Let me know. I gotta fix their pay.


texts: Structural estimation based on simulated data

texts: I wrote down a structural demand model, simulated data for exogenous variables (product features and consumer characteristics), and generated data for endogenous variables (observed consumption choices). I then estimate the model with the data using a maximum likelihood estimator. However, the estimates are very different from the true parameters used for simulation. Why does this happen and what should I do?


texts: What is the proper term for "contraction economics?"

texts:
By "contraction economics" I mean theories and work based on the assumption that the population of a country will decline over time.

An example might be a paper looking at the housing market for Japan over the next 50 years (if it assumed that population decline continued over that time).


texts: Can repeated bidding in an auction make each player's type common knowledge?

texts:
In Benjamin Edelman, Michael Ostrovsky, and Michael Schwarz(2007), there's a hand-waving argument to justify their setting as a game of complete information:

  we assume that all values are common
  knowledge: over time, advertisers are likely to
  learn all relevant information about each other's
  values.

My question is, to what degree, this reasoning can be justified?

My feeling is that, for an auction with an infinite type space and at least one bidder having a partition of infinite cells, it is wrong(see Geanakoplos and Polemarchakis (1982)). To proceed, it seems to me, one needs to represent a bidder's bidding strategy as a function measurable with respect to her own type, and history records of bidding, which seems to be quite complicated.


texts: What is the math behind the coefficient of Absolute Risk aversion?

texts:
I have a good grasp of Calculus but I have never used the ratio of second and first derivatives.
So, I am having a hard time understanding what it does and how?


texts: Why is the price of books set by the manufacturer rather than the distributor?

texts:
For almost all manufactured goods which the manufacturer doesn't sell directly to the end consumer, the manufacturer sells to a distributor, and the distributor is then free to resell the good to the consumer at whatever price she wants (although of course if the distributor wants to stay in business, then the final price will be primarily set by market forces).

But the market for books is an exception: the manufacturer (i.e. the publisher) physically inscribes the sale price directly onto the manufactured good. The distributor (i.e. the physical or online bookstore) can offer a "discount" and sell it at a lower price than the prescribed one, but can't reasonably sell for a higher price for reasons of consumer psychology. I can't think of any other good which uses this strange business model. It seems to deprive the market of pricing flexibility to adapt to e.g. regional variations in demand, transportation costs, etc.

Of course, the market for books is very distinct from a standard market described in microeconomics textbooks, because so much of the value of the book comes from intellectual property rights rather than from physical resource and manufacturing labor costs, which makes it more like a monopoly than a competitive market. (Moreover, depending on how the author's compensation is structured, the publisher may face very high fixed costs.) But on the other hand, other markets like video rentals seem similar in that respect, but the movie studio doesn't set the sales price - the video distributor does, as in a standard market.

Why is the market for books so weird?


texts: How a utility function which is both DARA and CRRA can be explained?

texts:
I'm studying risk aversion and I cannot make a intuitive explain about the utility function which is DARA and CRRA.

for instance, let's say, $\ln W$, where $W$ stands for one's wealth.

by the definition of absolute risk aversion, its ABA is ${1}/{W}$
and it is CRRA since its relative risk aversion is $1$ .

then here's the start of my confusion.

first, consider a fair gambling, and two guys who have same utility function as $\ln W$.  By DARA, the one who is richer would not feel much riskier than the poor. So he would not spend as much as the poor guy do for making fix his income, for example by contracting insurance(it means the richer would pay less insurance fee for hedging his risk than the poor guy.

second, what about the aspect of RRA(relative risk aversion)? It is constant. I understood this as,, that the rich man and the poor man's spending in their insurance fee does not depend on their wealth(specifically, does not vary when their wealth increases or decreases) let's say for some risk they would like to pay 3% of their wealth to avoid the certain risk. Then, from here, it is clear that the 3% of wealth of rich man is bigger than the poor man.

In other words, It looks that the rich man would pay much more money for insurance than the poor man when we see the aspect of RRA. However, DARA says that it is not the case. For me, this does not makes sense. And with a common sense, if a person who is willing to avoid risk would feel less risky when he becomes rich. So DARA looks fine. But the situation with CRRA looks contradiction about one's utility (function).

The question should have been shorter..sorry about that. Please leave me a hint to solve this confusion. Thanks.


texts: negative interest rate lending ripple effects

texts:
I was attempt to describe the ramifications of negative interest rates across benchmarks.

I can foresee the business practice changes amongst holders of government bonds, savings accounts, certificates of deposit and mortgages. My conclusion was a possible stall of lending in those markets, but thats a red herring to my real question. When it comes to corporate debt I wasn't so sure what ramification even lower interest rates would have on the attractiveness of investment grade corporate debt.

Is there anywhere I can read prevailing or new theories about that?


texts: Bolzano-Weierstrass Theorem and Pareto Efficient Allocation

texts:
Wikipedia says 'The Bolzano–Weierstrass theorem allows one to prove that if the set of allocations is compact and non-empty, then the system has a Pareto-efficient allocation.'
However, I couldn't find a compelling simple proof for this theorem anywhere. Could someone provide a proof for the theorem in a simple fashion that is understandable for Undergrad students in Economics who have done a course in Analysis?


texts: Is Marginal Rate of Substitution a multivariable function?

texts:
Suppose I have $U(x,y)$ and a level set of indifference curves. Suppose the value of $U$ along a given curve is $\bar{U}$. We know $dU = 0$. We compute total derivative, rearrange, and now have

$$\frac{dy}{dx} = -\frac{U_x}{U_y}$$

My Confusion and Question:

$\frac{dy}{dx}$ is written as a function of a single variable right? But when we talk about $MU$, we always talk about it as a multivariable function. I thought $MRS$ was the ordinal utility analog of the cardinal utility $MU$. So why is $MRS$ a single variable function?


texts: Why Law of Supply indicate direct relation between price and supply?

texts:
According to Wikipedia, the Law of Supply states that:

  an increase in price results in an increase in quantity supplied.

However, if the market was overflowing with a particular good (meaning higher supply), wouldn't the prices be lower? In the same vein, if the price was higher, wouldn't it be because the supply was less (all other factors, including Demand, constant). Also, wouldn't this create a run-away effect where increasing prices and supply drive more increase in each other, effectively launching prices to near infinity?

Wikipedia also states, if I understand correctly, that this view belongs to a "modern mainstream economics".

Can someone explain this seeming paradox? When we talk about supply, are we talking about future supply which will be guided based on speculations on current prices? If so, what laws will govern the present supply?


texts: Isn't buying currency with high interest rates a double whammy?

texts:
I will give an example of what I mean and please tell me what I'm missing because this can't be correct. For the sake of simplicity I will only use USD and EUR.
So let's say that the central bank in the US raises interest rates. You buy USD with EUR and leave it there for let's say 1 year. You get your nice interest, and decide you want to buy a house in Europe, so you need euros.

Now what happened with the price in that time? Let's suppose the initial ratio was eur/usd=1. Because of the high interest rates on usd, it's value appreciated and eventually the ratio became say eur/usd=0.5. At that point you decide to sell your dollars for euros. Now, not only did you earn money because of the interest you got on USD, but now the exchange ratio also went your way, so isn't this a double whammy?

To use some numbers:
you have 100 euros, you buy 100 usd.
Interest is 100%, now you have 200usd. You earned money.
You decide to buy euros again. Since eur/usd=0.5, with 200usd you buy 400 euros. You earn money again!

I know this is oversimplified but I would like to know the key point that I'm missing. Is it the uncertainty?


texts:
I heard somewhere that QE is not the same as printing money -- in fact as I know it, QE is the purchase of assets in exchange for more liquid and high-quality, better collaborated debt. In other words, it stimulates the exchange of liquid fiat, and indirectly increases the money supply in circulation (that is, money not in reserves) by inducing banks to lend, and therefore practice fractional reserve banking. So the analogy to "printing money" is a misnomer.
Is this explanation wrong?


texts: How to interpret correctly the uncovered interest rate parity condition

texts:
So, according to my macroeconomics professor's notes, the UNCOVERED INTEREST RATE PARITY CONDITION is defined this way :

Now, i don't quite grasp the concept of the 'expected appreciation rate of the domestic currency'.

I was thinking that he meant maybe the 'expected depreciation of the domestic currency ' .
Why am i saying this ?

Because if i go on the following slide , i see this :

In accordance to this last slide, the implication would be that if the 'expected appreciation of the domestic currency' is positive, then the foreign interest rate (return) is higher than the domestic interest rate (return ) . This doesn't really make sense to me .
It would make sense if we said that ' if the expected depreciation of the domestic currency is positive', then the foreign interest rate is higher than the domestic interest rate.

Indeed, if i go on another book of mine , this is what it says :
It is not always convenient to buy domestic bonds when domestic interest rate is higher than the foreign interest rate . This is because, if the expected DEPRECIATION of the domestic currency exceeds the interest rate differential , then the return on foreign bonds will actually be higher .

So my question is, did my professor maybe mean that the domestic interest rate must be equal to the foriegn interest rate minus the expected depreciation rate of the domestic currency? If this is the case, then it would make sense to me . Obviously , if the domestic interest rate is higher than the foreign interest rate , BUT there are expectations that the domestic currency will decrease, then foriegn returns would actually be higher .

AM i correct?


texts: How can I represent this observation regarding options in a formula?

texts:
By observing how an option's expiration P/L changes as its underlying asset price changes, we can discover the following system of equations:
$\begin{cases}S_{Long} = C_{Long} + P_{Short} \\ S_{Short} = P_{Long} + C_{Short} \\ S_{Long} = -S_{Short} \\ C_{Long} = -C_{Short} \\ P_{Long} = -P_{Short}\end{cases}$, where the $S$'s are stocks, the $C$'s are call options, and the $P$'s are put options.
Linear algebra reveals that any one of these equations could be removed without loss of information.
By observing how an option's expiration P/L changes as its strike price changes, we can discover the following similar system of equations:
$\begin{cases}S_{Long} = P_{Long} + C_{Short} \\ S_{Short} = C_{Long} + P_{Short} \\ S_{Long} = -S_{Short} \\ C_{Long} = -C_{Short} \\ P_{Long} = -P_{Short}\end{cases}$, again with one linear dependence shared between all five equations.  It can be seen in the linked data that the call options and put options have exactly swapped behaviors, leading to the slight variation between the two systems.
How can we mathematically represent this swap and harmonize the systems?  My intuition is that partial derivatives are at play, and that this may lead to a partial differential algebraic system of equations.  If so, I'll probably only understand a thoroughly curated answer, as I'm just preparing to begin studying PDEs.


texts: Has US real median personal/household income been stagnant since the late 1970's/early 1980's?

texts:
This is referring to an earlier question: Why are real median household incomes stagnant?

How do the following graphs actually tell you that US real median personal/household income has been stagnant since the late 1970's/early 1980's?

Real Median Personal Income in the United States

Real Median Household Income in the United States

How are these graphs in line with the following graph, which does look more like stagnant wages (when comparing wages in constant dollar):

For most workers, real wages have barely budged for decades

as well with the following graph which also seems to show stagnant wages:

Wage Stagnation in Nine Charts


texts:
Why does neoclassical economics assume preferences are fixed and exogenous in nature? Is this because it's just a convenient assumption to make?

Does this link with the idea of "De Gustibus Non est Disputandum" (tastes are not a matter of dispute), if so, how?

Surely it isn't accurate to say that preferences are fixed when societal influences can easily change the preferences of individuals (e.g. through herd mentality etc.)?


texts:
GDP = C + I + G + (X-M)

If GDP is supposed to count only final goods and services, why include I? Eg if build public roads, can count as G; if build factory, can count when factory produces goods and those goods are sold.

Put differently, counting I seems to double count. Eg if one counts spending on factory as I today, when the factory produces and sells goods tomorrow and in subsequent periods, the counting is done again (eg I, followed by C).


texts: Bayes-Nash equilibrium and correctness of beliefs

texts:
Define a Bayesian game as follows: $$G = \left\langle I, \left(A_i,T_i,(p_{t_i})_{t_i \in T_i}, u_i \right)_{i \in I} \right\rangle$$

$I$ is the set of players
$A_i$ is the action set for player $i$,
$T_i$ is the set of possible types for player $i$,
$p_{t_i} \in \Delta(T_{-i})$ is player $i$'s beliefs regarding the types of the other players. $(T_{-i}=\times_{j \ne i}T_j)$
$u_i : A \times T \rightarrow \mathbb{R}$ is player $i$'s utility function

Then a Bayes-Nash equilibrium is defined as follows:

  A (pure) Bayes-Nash equilibrium is a profile of choice functions (or
  strategies) $(\sigma_i:T_i \rightarrow A_i)_{i \in I}$ such that,
  $\forall i \in I, \forall t_i \in T_i, \forall a_i \in A_i$,

  $$\sum_{t_-{i}}p_{t_i}(t_{-i}) \cdot u_i(\sigma_i(t_i),
  \sigma_{-i}(t_{-i}); t_i, t_{-i}) \geq \sum_{t_-{i}}p_{t_i}(t_{-i})
  \cdot u_i(a_i, \sigma_{-i}(t_{-i}); t_i, t_{-i})  $$
  where, for every $t_{-i}, \sigma_{-i}(t_{-i}) = (\sigma_j(t_j))_{j\ne i}$.

And now my question: Am I correct that this implies that, in a BNE, every player (or rather, every type of every player) best responds given their beliefs about the types of other players, but that there is nothing in a BNE that pins down the beliefs a player (or type of player) has on the types of other players? That is to say, in a BNE, a player (or type of player) could have a degenerate belief (putting full probability on some $t_j^*$ for player $j$) in an equilibrium in which $t_j \ne t_j^*$? Put more simply, can a type of player's beliefs about the type of another player be wrong in a BNE?


texts: Find a subgame perfect equilibrium and a Nash equilibrium

texts:
I want to know if my thinking is correct.
Look at the following game.

As the game has only one subgame (i.e., the game itself) then the Nash Equilibria will coincide with the subgame perfect equilibria.

In this case, we have two Nash equilibria: {U, u} and {D, d}. By my statement before, the subgame perfect equilibria will be {U, u} and {D, d} too.

Am I right?


texts: Do you know how to compute the IRF of a GARCH (1,1)

texts:
We have the following model (GARCH (1,1) )
$y_t=\sigma_t\epsilon_t$
$\sigma_t^2 = \omega + \beta*\sigma_{t-1}^2 + \gamma*y_{t-1}^2$
Note that we can rewrite the latter as:
$\sigma_t^2=\frac{\omega}{1-\beta} +\gamma\sum_{j=1}^\infty \beta^{j-1}y_{t-j}^2$
Can anybody show the algebra of the impulse response function of $\sigma_t^2$ with respect to $\epsilon_{t-k}^2$?
Many thanks!!


texts: The phase diagram for the simple RBC model

texts:
I'm reading these notes in the RBC model. In page 14, the author, tries to explain the direction of the arrows, in the space $(\tilde C_t,\tilde K_t)$ (tilde refers to proportional deviations from steady state) , to explain the dynamics.

If I look at equations (47) and (49), the ones that are used to derive the isoclines (equations (50) and (51)), I do not understand how to see the directions  Up/Down, Left/Right...

Any help would be appreciated.


texts: Market clearing price and dual variables in auctions

texts:
Suppose the allocation of an auction (or a market) is defined by the solution of a linear program.
Then it is known that the associated clearing price is given by the dual variable associated to the offer-equals-demand constraint, see for example slide 19 of this course on electricity markets.
It is also known that when duality is not well defined (for example in the presence of non-convexities, such as in mixed integer programs), finding clearing prices might be difficult, as explained in O'neil et. al. Efficient market-clearing prices in markets with nonconvexities (2005).
I am sure there is a simple answer to my question but here it is: in an auction, why use the dual to find a clearing price instead of simply setting as a clearing price the highest accepted offer (that is the highest price amongst bids that receive a positive allocation)?


texts:
The question is:
A man is planning to retire in 20 years. Money can be deposited at 8%, compounded monthly. It is estimated that the future general inflation rate will be 3% compounded annually. What deposit must be made each month until the man retires so that he can make annual withdrawals of $20000 in terms of actual dollars over the 15 years following his retirement? (Assume that his first withdrawal occurs at the end of the first year after his retirement)

My approach is:
$$ i = (1 + \frac{0.08}{12})^{12} = 0.082 $$
$$ P = $20.000(P|A, 0.082, 15)(P|F, 0.082, 20) = $34966.04$$

Now to find the deposit, in terms of constant dollars first I calculate inflation free interest rate

$$(1+i^{'})(1+ \frac{0.03}{12}) - 1 = \frac{0.08}{12} $$
$$i^{'}= 0.00415$$

I am not sure about this last equation, could anyone please justify or correct it?
$$A = $34966.04(A|P, 0.00415, 20)$$

Thank you.


texts: Problems with economic modelling: good textbooks/articles/papers?

texts:
I am interested in the problems that may arise when one models economical phenomena using mathematics and indeed also the nature of these models. Are there some good and easily accessible textbooks, articles, papers or other literature out there treat this topic? Perhaps a few classics that are well-regarded in the field?

My background is mostly mathematical, but I understand intermediate economics, both macro and micro.


texts: log linearization around steady state (price dynamics)

texts:
I'm stuck with a derivation from Gali's book.

In the version 2008, I can't get eq. (7) from chapter 3. All is ok until the following:

$$
(1-\epsilon)\log\pi_{t}=\log(\theta+(1-\theta)\exp[(1-\epsilon)(\log{P_{t}^{*}}-\log{P_{t-1}}])
$$

I'm not sure how to do the log-linear approximation of eq. above to get this:

$$
\pi_{t}=(1-\theta)(p^{*}-p_{t-1})
$$

Please if someone could help me I will appreciate it a lot. Thanks!


texts: Is it accurate to state that an economist cannot assign a true numerical value for utility?

texts:
Investopedia article - What is the utility function and how is it calculated?
https://www.investopedia.com/ask/answers/072915/what-utility-function-and-how-it-calculated.asp
Article describes ordinal versus cardinal utility:

When economists measure the preferences of consumers, it's referred to ordinal utility. In other words, the order in which consumers choose one product over another can establish that consumers assign a higher value to the first product. Ordinal utility measures how consumers rank one product versus another.

Economists take the utility-function concept one step farther by assigning a numerical value to the products that consumers choose or choose not to consume. Assigning a value of utility is called cardinal utility, and the metric used to it is called utils.

Article includes the following statement under limitations and benefits of utility function:

Of course, in reality, economists can't assign a true numerical value to a consumer's level of satisfaction from a preference or choice. Also, pinpointing the reason for the purchase can be difficult if there are many variables being considered.

Is this an accurate description of economic reasoning? Utility functions are models  constructed by a particular economist who cannot assign a true numerical value?
To further develop my question, if it is not clear, in a scientific measurement there is a procedure which defines a standard unit of measure. Instruments are calibrated in terms of these procedures and then calibrated instruments are applied to assign the numbers with units in the models. Is there a standard procedure for assigning numbers to specify utils or is it constructed when the economist assigns numbers arbitrarily to the ordinal set?
Another article - Constructing a utility function:
http://planning.cs.uiuc.edu/node469.html

Unfortunately, establishing the existence of a utility function does not produce a systematic way to construct it. In most circumstances, one is forced to design $ {\cal U}$ by a trial-and-error process that involves repeatedly checking the preferences. In the vast majority of applications, people create utility and cost functions without regard to the implications discussed in this section. Thus, undesirable conclusions may be reached in practice. Therefore, it is important not to be too confident about the quality of an optimal decision rule.


texts: Is utility in neoclassical economics a circular argument/concept?

texts:
Neoclassical economics as a utility function that represents a consumer's preference ordering over a choice set.

Joan Robinson criticized utility for being a circular concept:

  "Utility is the quality in commodities that makes individuals want to
  buy them, and the fact that individuals want to buy commodities shows
  that they have utility"

This criticism is similar to that of the philosopher Hans Albert who argued that the ceteris paribus conditions on which the marginalist theory of demand rested rendered the theory itself an empty tautology and completely closed to experimental testing. In essence, demand and supply curve (theoretical line of quantity of a product which would have been offered or requested for given price) is purely ontological and could never been demonstrated empirically.

In my understanding, the neoclassical economics is based on utility. So if this concept is no testable, and circular, how neoclassical economics can explain anythings?

I'm not saying the system can not predict anythings, because if we record a lot of behaviors, we can certainly predict some behavior by comparing similar patterns (it's mainly the logic behind machine learning). But we should not call that a theory neither an explanation.

I end up with those interrogations:

Is utility a circular definition?
The theory has falsifiability?

Related content

As I'm exploring this question, and will add some content I stumble upon that I think add some context.

https://fixingtheeconomists.wordpress.com/2014/02/17/joan-robinsons-critique-of-marginal-utility-theory/


texts: Can I rename a utility function based on its properties?

texts:
A big name researcher gives a name to a specific utility function 30 years ago. Now I am writing a paper and feel that a new name might be more suited because of the properties associated with the utility function.
That name was not heavily cited.
Can I give it a new name, or will the readers find the new name weird, overwhelming, and confusing?


texts: So my question is about maturity mismatch and what is the appropriate method to calculate it. I have seen some simplified examples in academic books but, when I tried to approach it in a holdings bank, I could not really find a solution. Do I do a duration gap analysis? Cause for example in the balance sheet I am looking, the liabilities are less 1 year, between 1 and 5 years, and more than 5 years. Do I just look for the short term A-L ? Can you suggest me to an approach?


texts: What does "r" represent in the total cost function?

texts:
I know that the total cost function of a firm in the short run is:

TC  = wL + rK,

where rK is essentially a constant. I understand the variables w, L and K, but I still don't get what r is. I mean, what  do I input as "r" when I'm trying to draw up a total cost function?

Thank you.


texts: Segal (2000) question about utility opportunity set

texts:
I am reading a JPE paper "Let's agree all dictatorship are equally bad" from Uzi Segal （2000）.

I have a small problem with this paper. We have the following Utility Opportunity Set (UOS):

$$ S(w)=\{(u_{1}(L_{1}),\dots,u_{n}(L_{n}))\} $$

where $L_{1},\dots,L_{n}$ are the individual lotteries induced from $L \in £(w)$, and $£(w)$ is the set of lotteries over possible resources allocations $w$.

If $g={w^*}$ is a singleton, the assumption "Indifference by pure and mixed lotteries" in the paper implies linear parallel indifference curves in the UOS by standard techniques. However, I do not understand why when $w^*$ has a range (different possible values), the induced order on each $S(w^*)$ may be flat (if the policy everywhere else is fixed).

Another one have read the paper before? Any help would be appreciated!


texts: Where to find a brazilian claim from german geologist Eschwege?

texts:
In Das Kapital, ch I.1, Marx says that german geologist Eschwege claims that

  total product of the Brazilian diamond mines for the eighty years
  ending in 1823 still did not amount to the price of 1 1/2 years’
  average product of the sugar and coffee plantations of the same
  country,

Where does Eschwege claims that?


texts: Externalities from motor vehicles - more recent estimates?

texts:
I am looking for estimates for the externalities from motor vehicles.

There's an excellent paper "Automobile Externalities and Policies" (2007) on this exact issue, but it's a bit old now.

I was wondering if there was more recent/updated study that does something similar?


texts: Finding the Pareto optimal set with preferences for 3 individuals

texts:
Question: Let $N=\{1,2,3\}$ be a set of three people and $X=\{a,b,c,d\}$ a set of 4 political parties. The individuals have the following preferences:

Individual 1: $a \succ_1 b \sim_1 c \succ_1 d$

Individual 2: $d \sim_2 a \succ_2 c \succ_2 b$

Individual 3: $a \succ_3 b \succ_3 c \succ_3 d$

List all pairs of $(x,y) \in X \times X$ such that $x$ Pareto dominates $y$ and deduce the optimal Pareto set.

I think I am being thrown off by the $X \times X$ bit. But it seems like if I multiply out $X$ I will get the following:

$X \times X = \{(a,a),(a,b),(a,c),(a,d),(b,b),(b,c),(b,d),(c,c),(c,d),(d,d)\}$

So if I define the Pareto outcomes as $x \succeq^P y \iff x \succeq_i y$ for all $i=1,\dots,n$. Then my answer to the question would be the pairs are:

$(a,b),(a,c)$ since those are the only two combinations which dominate in all three individuals. I don't think it makes sense to examine the $(a,a),(b,b),...$ case, but I could be completely wrong. For some reason I can't seem to wrap my head around it, and I could have gone wrong right from the beginning.


texts: Why there are no famous software/IT companies in Europe? (unlike USA)

texts:
Both USA and Europe have highly developed economies with famous car, aircraft, food, oil etc. companies.
However, when it comes to IT -

USA has Google, Facebook, Amazon, Dell, Cisco, Microsoft, Red Hat, HP, Apple etc.
Europe has... nothing? (Nokia is dead)

Why?


texts: How does the limit of $U(x, y) = (ax^{-c} + by^{-c})^{-\frac{1}{c}}$ as c approaches 0 yield the Cobb-Douglas utlity function?

texts:
\begin{equation*}
U(x, y) = (ax^{-c} + by^{-c})^{-\frac{1}{c}}
\end{equation*}

I ask this mainly because after logging both sides of the Utility equation (the first step to proving the assertion, I assume), I am left with:

\begin{equation*}
\lim_{c \rightarrow 0} \dfrac{-\ln(ax^{-c} + by^{-c})}{c}
\end{equation*}
I know that the bottom will go to 0, and I have a feeling that the top will go to 0 to.  However, all I am left with on the top is essentially $a + b$, and for it to go to 0, $a + b = 1$.

How can $a + b = 1$?  Is this the right direction?  What does $a + b = 1$ mean?  Why does $a + b = 1$?

Edit:  And once proven, what does this whole "limit" thing say about the original function?  What is so special about this particular equation such that its limit as $c \rightarrow 0$ is the Cobb Douglas function?

Edit 2:  Upon further research, I have discovered a suspiciously similar function known as the CES.  $a$ and $b$, however, are instead $a$ and $(1-a)$ !!  Now I'm even more confused.  How am I supposed to derive that complementary relationship from this equation?  This is supposed to be consumer theory!


texts: How does profit correlate with the duration of options?

texts:
To wit, do  you profit more off options, the shorter-term they are like 0 DTEs? I know that  option premium correlates negatively with duration.
Pre-suppose you think some biotech will discover a medical cure and skyrocket, but you don't know when. So on a Thurs, you buy one each of a whole option chain for a company. So you have 1 option each of a 0 DTE, 7 DTE, 21 DTE, ..., 365 DTE, ..., to a 2-year LEAP.
The next day, the cure is discovered and the company's share price rockets! Do the shorter-term options necessarily outperform the longer-term options? Or does this depend on other variables?
I ask because gain-flaired posts appear to feature shorter-term options, like a \$600K+ gain on SLV in 3 days, $69,420 in a month, \$35K to \$1.25M in approx. 4 months, \$800 to \$40K in 2 months. I'm not wealthy enough to, and don't, gamble on options, and I know there are many posts flaired Loss too.


texts: Why is the rate of profit not important?

texts:
I've been taking some time to read up on the history of economic thought and am wondering why the rate of profit (which was a measure heavily discussed up to the 1970s) seems to disappear out of economics education all together.
I have my own ideas for why it dropped out of economics education but am wondering if there is a reason why this metric is no longer discussed (for the most part) in mainstream economics.


texts: Today I read  an artcicle about the falling oil price (maybe it'll go under 30$ per barel the next days). Why is this a bad news? Lower oil price can give an advantage for a higher productivity.


texts: Large banks collapsing verses a single countries economic decline

texts:
Please excuse anything i get wrong here i am in no way a economics expert but i am interested in the subject.

Earlier today I saw someone make a post about how banks like CitiGroup have been given $trillions in bailouts, and that Greece is in need of a much smaller bailout yet they are finding it difficult to get that. just want to reiterate that is not my opinion as i dont have enough information to form one yet but its just something i read. I'm guessing the post is massively misinformed and its probably not that simple since it was on Facebook.

I would assume that the reason banks like CitiGroup get larger bailouts is because their decline is more detrimental to global economy than Greece's decline would be? (just a guess)

So to my question, Can anyone explain (or point me to a resource than can explain) to me why banks tend to get larger bailouts (if that's even true) and what effects a large bank failing has on world economy verses a country similar to Greece's economy collapsing and what effects that would have on the rest of the world.

Again apologies for any incorrect terminology, as i said at the top im not an expert or even a student in the field of economics i'm just trying to get a better understanding on how banks affect the global economy verses how a country affects the global economy

for reference here is a copy and past of the post i saw;

  The current estimate is that Greece needs a bailout of around
  370billion. No one wants to know. meanwhile have a look at these
  bailouts and the banks that had no problem getting them from tax
  payers like you and me.

  citigroup - $2.513 trillion,

  Morgan Stanley - $2.041 trillion,

  Merrill Lynch - $1.949 trillion,

  Bank of America - $1.344 trillion,

  Barclays PLC - $868 billion,

  Goldman Sachs - $814 billion,

  Royal Bank Of Scotland - $541 billion,

  JP Morgan CHase - $391 billion,

  Deutsche Bank - $354 Billion


texts: Most significant factors in the price of a goverments bonds

texts:
As a follow up on Long-,short-term interest rates and inflation.

Inflation is clearly a factor(tho not possible to model mathematically) when it comes to the market price of a bond. I can think of two ways in which it enters(in the short run), let me know weather these two are true or not i.e this is my main question,

Via the loss in value of nominal amount;this I extraced this from this quote

"Inflation is a bond's worst enemy. Inflation erodes the purchasing power of a bond's future cash flows. Put simply, the higher the current rate of inflation and the higher the (expected) future rates of inflation, the higher the yields will rise across the yield curve, as investors will demand this higher yield to compensate for inflation risk"[1]

Long term rates are the expected average of short term rates and the shortest i.e the funds rate is set to control inflation, the inflation expectations should be pretty much the same as short term rate expectations due to this, if this is how one should think about it. In conclusion, short term rate expectations and inflation expectations are pretty much the same thing and these in turn determine the longer term government bond rate.

Any comments on other factors and the logic behind their impact would be great to have

[1]https://www.investopedia.com/articles/bonds/09/bond-market-interest-rates.asp


texts: Probit with panel data - assumptions violated with endogenous covariate?

texts: I am trying to understand how does the fact that a regressor is endogenous (as a result of reverse causality) in a dynamic probit model violate any assumptions that I may need to make for this model. E.g. for an OLS model, it is pretty straightforward - the orthogonality condition for the regressor being uncorrelated with the error term will not hold. Can similar logic be extended to probit models with panel data? I would appreciate simple explanations and/or references that explain this.


texts: If Gross Savings is less than Gross Investment, could we say that investment is being made with borrowed money?

texts:
For example, gross savings of India in the financial year 2014 - 2015 was $30.2%$ of GDP, while the Gross Investments during this same period was $31.6%$ of GDP.  Can we then conclude investments are being made with borrowed money?

Also, if "Gross Savings" is $30.2%$, can it be said that an average person in India saves about $30.2%$ of his income?


texts: When a foreign company wants to export their goods to the U.S. they may encounter a tariff (e.g. steel). The tariff is imposed by the U.S. government at the port of entry and is a form of tax revenue. However, does the exporter's revenue take a hit or do they simply charge the importer more to take the cost of the tariff into account? Does it just depend on whatever agreement the exporter/importer come to?


texts:
I want to read about Karl Marx's grasp of the term "interest" (on money).

I have read that he wrote about it in his book "Das capital" but there might have been more works of Marx in which he at least dedicated some part to discuss interest.

Please share where in Marx's works should others and myself read to find his opinions about interest.


texts:
I am dealing with what I believe to be cointegrated statistics (Johansen says cointegration is present) however, when regressing the model the error terms are not stationary.

One of the causes of this is autocorrelation in the dependent regressor. So by imposing an AR structure on the model, I do get stationarity of the error terms, but is this cooking the equation to make it stationary?

Thanks!


texts: Negative probabilities - Can we have negative payments in bonds?

texts:
In Half of a Coin: Negative Probabilities, the author mentions bond duration.

Suppose we have payments at times $t = 1,2,...,n$ denoted respectively by $R_1, R_2, ..., R_n$ and the discount factor is $v = \frac{1}{1+i}$ where $i$ is effective interest rate. Then the bond value today is given by

$$B = \sum_{t=1}^{n} R_tv^t$$

The bond duration is

$$D = \frac{\sum_{t=1}^{n} tR_tv^t}{\sum_{t=1}^{n} R_tv^t}$$

It can be seen that $$D = E[T]$$

where

$T$ is a random variable with range $t = 1,2,...,n$ each having probability $\frac{R_t v^t}{B}$

The author says something like we can have negative probabilities if we have negative $R_t$'s. So this is a kind of bond where instead of making a payment we get a certain amount of money? Is there such a thing? Or is that only in theory?


texts: I have to do a study to determine the real exchange rate . I've read about the purchasing power parity and the interest rate parity . I also found the cross rate formula and was wondering if the result I get after applying this formula is a real exchange rate or nominal one ? If not can anyone recommend me a 3rd method ? Thanks !


texts: How does stock market drop affect the economy if it doesn't affect the corporations?

texts:
Sorry if it's a basic question.

Suppose corporation ABC went through public offering many years ago. ABC retained 30% of the shares, and 70% are being traded. The very initial offering, ABC made money. But thereafter, all the share trading and the associated money doesn't go to ABC, rather between the share holders.

How does a drop in share price due to trader fears (or an action ABC took) affect ABC itself? According to How can a company run out of cash when its stock prices is dropping? it does not affect the corporation.

  Stocks usually don't affect the immediate operation of a company, since they are traded on secondary markets (stock exchanges) among stock owners.

So how does it affect the overall economy?


texts:
Is skills or abilities of the worker taking in consideration in Marx law of value?

I know about the subjective theory of value, but I want to know how Marx takes this in consideration

As far as I have been reading the law of value only takes the labour hours work to produce a commodity.

  the more labour it costs to make a product, the more it is worth, and inversely the less labour it costs to make a product, the less it is worth

let's say

product A

takes 10 hours
you need specially skills that are a hard to learn
only 14% of population already have those skills to build that product

product B

takes 10 hours
you do not need special skills
90% of the people already have those skills to build that product

A value = B value ?
I'm not taking about money price

In a real example

A web developer takes 10 hours to make a fancy custom bio web page.
A woodworker takes 10 hours to make a chair.

the chair value = the web site value?

Is the worker him or her self taking in consideration at all?

since worker1 might build a much better web site in 10 hours than worker2


texts: Calculating between-group inequality without microdata

texts:
I have data about a few (subnational) geographical units. For each of these units, I know:

1) the proportion of workers by level of education

2) the average income by level of education

3) the average income for the all the population (across all levels of education)

I do not have access to micro-data, and I realise that this prevents me from taking within-group inequality into account.

That being said, what would be a way to calculate between-group (level of education) inequality, so I can compare its values across units?


texts: Is more opium produced legally or illegally?

texts:
I've had a hard time finding statistics on legal and illegal opium poppy production.
At the UNODC we find facts like:

global [illicit] opium production fell by almost 30%, to less than 5,000 tons in 2012

while the undated DEA Museum claims that:

Legal growing of opium for medicinal use currently takes place in India, Turkey, and Australia. Two thousand tons of opium are produced annually and this supplies the world with the raw material needed to make medicinal products.

But it is hard to imagine the legal production of opium being capped to two thousand tons for all eternity. An article at the Transnational Institute website, dated 2005, contains some more realistic-sounding information:

Australia is the largest producer of legally permitted opium, doubling production in the past five years. Opium production in Spain tripled in that time, while legally-sanctioned poppy fields prosper in France, India, Turkey and Hungary. Even Britain is now growing opium poppies legally. The state monopoly in India, meanwhile, produces about the same amount of legal opium - 821 tons in 2002 - as Burma does illegally (828 tons). Worldwide, more opium is produced legally than illegally.

Unfortunately, the sources for this data are not cited. I'm particularly interested in the last claim, "Worldwide, more opium is produced legally than illegally."
Illegal opium production is supposed to have crashed towards the end of the last decade. This is apparently because the market for naturally-derived heroin from Afghanistan and Mexico has been replaced by synthetic fentanyl from Chinese factories, which is more compact and easier to transport. In consequence, I would guess that now more opium poppy is being grown for legal production than illegal. However, I'm curious what the case was during earlier decades. I'm also curious what the typical ratio is between legal and illegal production quantities, and how that has varied over time.


texts: Welfare status when a positive externality is subsidised

texts:
I was wondering if there is still welfare loss for example there is a positive externality in production of a good and the government decides to subsidise the good?

I think it does still have welfare loss, because the subsidy has to be payed for but I am not sure.

Is it because the government taxes things that have negative externalities and then uses this money to subsidise things that have positive externalities that in the end there is no welfare loss?

Thank you for your help in advance.


texts: AR(1) in Discrete Version of Stochastic Growth Model

texts: If I assume a stochastic growth model in discrete time and the production function is defined as $F(K_{t}(s^{t-1}), L_{t}(z^{t}))$ where $z^{t}$ is history of the technological shock up to time $t$. A government also exists in the economy and the government spending at period $t$ is $g_{t}(z^{t})$. Can I assume that the government spending follows an AR(1) process given the setting in a stochastical process? If not, do you have any suggestions on modeling the change in government spending? Thank you!


texts: What does 'taxes less subsidies' actually mean? It feels like it is grammatically incorrect. I have assumed it to just mean taxes minus subsidies.


texts:
I am new to Matlab (& also to stackexchange) and I need to learn it for a dynamic Macro class.
I have trouble using a while loop in a function. The function is supposed to calculate the amount of coins one needs to pay price p. My function, however, just provides a vector displaying which coins I need and not how much of which. I hope, someone jumps in and helps me out of my trouble. Here is my code:
function[c] = achange(p,coins)
s=size(coins);
c=zeros(1,s(2));

while p>0
    for i=1:s(2)
    if coins(i) <= p
        p=p-coins(i);
        c(i)=c(i)+1;
    end
    end
end
end


texts:
I am going to decompose one of my time series. My goal is to get rid of the seasonal component. It looks like this:

The last picture is: log(next value/present value)
I have understood that if the seasonal variation is constant, you should use an additive model. And if the time series increases in magnitude, you should use an multiplicative model.
The graph is measuring income.
In my case it looks like there is a bit of both, so I can't figure out which one to use. Would anybody please help?
Thanks


texts: Using Ordinal (Star Rating) variables to predict outcomes in Log lin regressions + Taking Median significant coefficients of multiple regressions

texts:
Framing the regression I am attempting to analyze the effects of several variables on clicks for Google My Business listings. Currently I'm using a Log-Lin regression model to predict the % increase in clicks associated with being in the Google 3-Pack: $$Log(clicks) = [In Google 3-pack (Y/N)?]$$
How to include ordinal review Variables I'd like to also include review metrics - star rating out of 5, and # of reviews - as explanatory variables, and would like to know the best way to include ordinal variables such as star rating in this analysis. What is the best way to include this given that star ratings cannot go above a 5? I also suspect that users consider BOTH overall rating and number of reviews. Should I attempt to combine these variables? Or should I include them both as linear independent variables?
Can I run separate regressions for each location? I'm attempting to do this with thousands of store locations and am finding that each location has many factors affecting clicks, most of which cannot be measured or included. Thus I was thinking of running a separate regression for EACH location and looking at the median coefficients for significant predictor variables (i.e., the median significant lift of being in the top-3 is 50%) rather than grouping all locations into a single regression where most of the variation is due to differences in locations. This also allows me to segment the lifts by industry (i.e., regressions in the auto industry see X lift while those in food see Y lift). I'm not sure how I could best do this if I'm including multiple predictor variables though (do I only look at regressions where all predictors are significant? Do I consider any coefficient from any regression that is significant?) Is this the best way to address this problem or is there something better?


texts:
I'm learning about quotas from my textbook but I've found one thing that doesn't make sense to me at all and I think it may be a mistake in the book.
The context: $P_w$ is the price of wheat on the world market. So far the domestic government has allowed free trade but now they set an import quota of $Q_3 - Q_1$.

The text accompanying the graph says:

  Domestic producers now supply $0Q_1$ and $Q_3Q_4$ tons of wheat at a
  price of $P_{quota}$. Their revenue rises from $a$ to $a+c+d+f+i+j$.

What I can't understand is why they included $f$ in the last sentence. In my opinion their revenue rises from $a$ to $a+c+d+i+j$. Domestic producers first sell $0Q_1$ quantity for price $P_w$ so they make profit of $a$ and then they sell quantity $Q_3Q4$ for price $P_{quota}$ which gives area of the rectangle: $c+i+j+d$.  I have no idea what that $f$ is doing there. Can anyone explain?


texts: Walrasian demand with a twist of Leontief function

texts:
A consumer has the utility function $u(x_1; x_2) = \min(x_1; x_2) + 5 \max(x_1; x_2)$.
Find its Walrasian demand $x^*(p; w)$.
I've tried searching it up when we have two Leontief functions summed together but to no luck. If this was a simple case we'd just have $x_1=x_2$ and substitute it to the budget constraint to find the demand for both. Should we take each function separately or as a whole together? Kinda lost here.


texts: Why does supply (and demand) shift left and right as opposed to up and down?

texts: I've wondered about this for a long time. In the past I rationalized it by saying that up and left were the same (or at least have the same overall effect), and that thinking in terms of left and right works for increase/decrease in both supply and demand curves. But things like taxes raise prices which is most intuitively viewed as an upward movement (although saying left and right are useful regardless). Then when I encountered Keynesian aggregate supply (which makes it obvious that left and up are not interchangable), I was astounded when I learned that decrease in supply, including supposedly taxes, actually moved the curve left, not up. Shouldn't taxes exist which increase price levels of all firms in order to pay for them, moving (Keynesian) aggregate supply up because whatever quantity of goods firms produce they have to set prices higher to pay for the cost of taxes?


texts: Does Bangladesh and India's economy face similar economic obstacles?

texts: I had a question : Does Bangladesh and India's economy face similar economic obstacles (Poverty, education, unemployment etc) or are they different in their own terms ? I'd be extremely grateful if anyone could answer this question as I really need it for my EPQ. Many thanks.


texts: I think that conventionally implicit costs are positive but if for example we consider a negative interest rate as an implicit cost, the implicit cost would be negative. Is this true? Can implicit costs be negative?


texts: Capital mobility across industries and equalization of profit rates

texts: What are some restrictions to the competitive restoration of proportionality across industries in regards to capital mobility? What is generally impeding the free flow of capital from less profitable sectors into those with higher profitable potentiality and from eroding larger firms market share? Also does the integration of finance capital and industrial capital play any role in this? Lastly, why isn't new capital entering these markets and averaging out profit rates?


texts: How does "buy low, sell high" relate to supply and demand?

texts:
I'm taking introductory microeconomics, and I'm trying to consolidate my understanding by looking at some real world examples.
In a perfectly competitive market, there are many consumers and suppliers who are price takers. They are constrained to buy or sell at the accepted equilibrium price due to many competitors.
Therefore, we should expect $P^* = P_D = P_S$ for a certain good or service in a perfectly competitive market. However, having been to a foreign currency exchange at an airport, this does not seem to be the case! They are willing to buy an item (eg: USD) at a lower rate, but they sell it at a higher rate. So it seems that $P_D < P_S$ for the traders (looks similar to a tax wedge), assuming they are both buyers and sellers of the US dollar in the same market.
This example confuses me, as there seems to be two prices instead of one. In the textbook, if I were to buy $Q^*$ items at $P^*$, I should be able to also sell $Q^* $ items at $P^*$, not $Q^*$ items at $P < P^*$. Other examples of this can be seen whenever sellers and buyers are allowed to post their own listings; there always appears to be a price gap.
How do I explain these real world examples using the concept of supply and demand in a perfectly competitive market (and on the graph)?


texts:
What does it mean to identify structural shocks in macro models? Sometimes, it seems to mean just disentangling VAR innovations into 'structural' shocks which may or may not have any economic interpretation. Here, people use Cholesky decomposition and so on.
Other times, it seems identifying structural shocks mean imposing economic interpretation on the structure shocks you identified using for example the Cholesky technique. As an example, one may identify the stochastic component of the federal funds rate in a SVAR model as a monetary policy shock by assumption or by using some rigorous way as in Gali who identifies technology shocks step by step. But he could have impose it, right??


texts: How would a global Robin Hood deed affect the economy?

texts:
In one fiction series about a dystopian world, a small group of wealthy criminals owned a large fraction of the world's cash, which was on their bank accounts in a single offshore bank. In the happy end, heroes were able to steal the money belonging to these wealthy criminals and distribute it equally among everyone in the world. After the transfer, everybody in the world got its share on their own bank account.
What would happen to the economy in 1 month if this was the case? And in 1 year?
To me, intuitively, it feels that it just leads to inflation and after a period of turbulence the prices are going to stabilize at a level where everybody is poor again.
However, I'm not an expert. It would be interesting to know about the driving factors of this turbulence as well, and if something like this happened in the past history?


texts: Relationship between Interest Rates and Supply of a currency?

texts:
I am aware of how the interest rates affect the demand for a currency, but am baffled by how it affects the supply for a currency. I've read conflicting theories. Is it true that an increase in the interest rate increases the supply of a currency?

Many thanks


texts: Inc Linear Transformation of Bernoulli Utility

texts:
According to MWG Proposition 6.B.2, it illustrates that the expected utility form is preserved only by increasing linear transformation.

What is the significance of this proposition?

The part I find challenging in connecting the dots is when right after the proof of this proposition, the authors claim that this proposition allows us to interpret meaning in differences of utilities. How are these two exactly connected?


texts: What are the reasons why the rouble (RUB) is collapsing? Which one is the main one?


texts: Accounting for household work in the GDP

texts:
It is often told that domestic work is not included in the GDP estimates due to difficulty in measuring them. I wanted to know if there are any advances in measuring this, or any alternatives that have been devised or any other development in research in this field.

Are there techniques, regardless of practically how difficult they are, of possibly measuring domestic work?

Have such estimates been made by researchers, maybe at scales smaller than the national economy?

What are some theoretical approaches to understanding this? I remember Amartya Sen developed a model about intra-household trade. Is this related? Are there other such well known models?


texts: What's the definition of social welfare in a procurement auction?

texts:
In single item forward-auctions, the social welfare is defined as:
$$\sum_{i=1}^{n} v_i x_i$$
where $v_i$ is buyer $i$'s valuation for the item, and $x_i$ is a binary variable indicating whether or not $i$ gets the item.
What is definition of social welfare in a reverse auction(procurement auction)?


texts: Is loss in tax revenue a negative externality?

texts:
I was thinking about how online gambling could cause numerous governments to face a reduction in tax revenue from conventional gambling, upon which taxes do apply in most countries.

If governments do face such a loss in tax revenue, would such a loss in tax revenue be considered a negative externality?


texts: Currency substitution after withdrawal from a currency union?

texts: Currency substitution is the situation where a country uses a foreign currency.  For example, Montenegro and Kosovo unilaterally use the euro, El Salvador and Panama unilaterally use the dollar.  In the scenario that a country would be forced to leave an existing currency union (if at all possible), what would be the advantages and disadvantages should this country unilaterally decide to keep using the larger currency?


texts: Consumer surplus in case of perfectly inelastic demand

texts:
How do we define consumer surplus in the case of perfectly inelastic demand?

This question was inspired by the comments following this answer. For a graph of inelastic demand please also see the linked question.

A motivation for a definition would be that while consumer surplus would be strange in this special case, change in consumer surplus may still be measurable easily with quite reasonable definitions.


texts: What does this sentence mean in this specific context, relating to competition?

texts:
Ulrich,1991, p.82  documented that

Building competitive advantage from the inside out begins by
understanding the  business milieu and niche-the economic and social
changes affecting a  business. Understanding how these conditions
increase the pace of change  illuminates why organizations must become
more flexible, open, and responsive  to milieu conditions. An
increased pace of change increases the amount and  intensity of
competition as new competitors enter markets

I am wondering what does the last sentence mean and how this sentence relates to the previous two sentences that the author put into one paragraph like that.


texts: Economics' position in the hierarchy of sciences (hard vs soft)

texts:
As a student of Economics, I often listen to the claim that Economics is a "soft science" and that its results may not be too reliable etc. The explanations are often based on personal opinion.
I have newly come to know that rigorous academic literature exists that uses bibliographic and other data to rank sciences based on their "hardness", following Comte's idea of a hierarchy of sciences.
Wikipedia cited this as an empirical investigation of the hierarchy of sciences--
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3694152/
While I find this analysis useful, it does not specifically tell us where Economics lies in the hierarchy (it does find evidence of a hierarchy based on 5/6 factors like clusters in reference graphs, length of paper etc). In most of the results, it clubs all of the social sciences together. In one of the charts, it has a category "Economics and Business", which appears to be near the other social sciences in the hierarchy. But I am not sure where Economics alone (not clubbed with business or other social sciences) will stand in the hierarchy.
Another paper tries to specifically find Psychology's place in the hierarchy--
https://journals.sagepub.com/doi/10.1037/1089-2680.8.1.59
I wanted to know, if there are any such studies that specifically tell us about where Economics stands in the hierarchy-- whether it is closer to the natural sciences or the social sciences?


texts: Recovering from large government debt without currency devaluation

texts:
Current, Greece has a debt of roughly 175% of GDP.  The new government has announced it wishes to negotiate a write-off, something Eurozone leaders have so far refused.  From prior knowledge and this post, I understand that governments may want to stimulate consumption when the economy is doing poorly, and have budget surpluses / pay off debt when the economy is doing well.  Since the beginning of austerity, the Greek economy has shrunk by 25%, and unemployment is now 27%.  I have mainly read economical opinions arguing that austerity is harmful and needs to stop, but I the sources I read are probably not representative.

Is there any historical precedent of a country that recovered from a 175% debt, without either having substantial debt write-off, or a currency devaluation?  By recovering I mean: returning to substantial economic growth, increasing standards of living compared to crisis conditions, and a public debt shrinking to become substantially less than 100%.  If so, how did they do it?


texts: Forecasting vs econometrics, how is regression used differently?

texts:
I have this homework question:

  Q: Suppose that a marketing company is seeking to identify customers interested in their product.
  They regress the number of sales in an area on the average education level in that area. Does the coefficient likely represent a causal effect? Why? Is this a problem? Explain.

  A: The coefficient is not likely to represent a causal effect, it
  merely shows how the number of sales and average education move
  together. That relationship could be causality, reserve causality, an
  omitted variable could be determining both, or the two could be
  simultaneously determined. This isn’t a problem because the company
  isn’t trying to cause people to have more interest, they just want to
  predict if they’re interested or not.

So now I want to know, how is a regression used differently in a forecast vs a causal analysis?

If I'm looking for predictive power vs causality, how might the regression models be different, if at all?

Or how might the results be interpreted differently?


texts: because bitcoins do not generate earnings, then (it is a ponzi scheme)?

texts:
What does the author mean with:

  Since Bitcoins do not generate any actual earnings, they must
  appreciate in value to ensure that people are willing to hold them.

Why must they appreciate in value?  Is the assumption that people must  hold bitcoin?  Why is it necessary or required to hold bitcoin?

Or, is the author saying "eh, what goes up must come down."  Instead, the article seems argue that bitcoin will go to a "value" of zero:

  ...Bitcoins are the most demonstrably valueless financial asset ever
  created...

Isn't one of the criticisms to using gold as a currency that it's then tied up as a currency and not being used functionally?  Does the inherent valuelessness of bitcoin, or any other cryptocurrency, make it suitable for transactions?

Sure, bankers hold currency, but few individuals actually hold currency directly.  Generally money is spent or invested in quick order.  Which seems not directly related to adoption of bitcoin (or other cryptocurrency) for transactions.

What is the reasoning behind the notion that because bitcoin has no intrinsic value therefore it's not suitable as currency?  Or, to put another way, if no one "held" US dollars, but simply used them to spend or invest, would that invalidate it as a currency for buying chickens?

http://nationalinterest.org/commentary/the-bitcoin-bubble-bad-hypothesis-8353?page=2


texts: Hep with total differentiation of an AD function

texts:
Is there anyone who can help me with a total differentiation exercize. I am starting with the following formula for AD:

$$x=\mu ^{-1}(g+i+e)$$

Where $\mu$ is the Keynesian multiplier.

And have to obtain the following result (which is obtained by total differentiating and diving through by x):

$$\dot{x}=-\dot\mu+\frac{\mu ^{-1}g}{x}\cdot \dot g+\frac{\mu ^{-1}i}{x}\cdot \dot i+\frac{\mu ^{-1}e}{x}\cdot \dot e$$

Thank you very much to anyone who wants to help me with every step.


texts: What is the effect of expansionary fiscal policy in case liquidity trap situation?

texts:
I've read that liquidity trap means interest rate is at its minimum and increase in real money stock will not lead to fall in interest rate because people will be demanding whatever the amount is being supplied at that minimum interest rate. Now in books they say that in this situation when government expenditure rises leading to a rise in income and hence a rise in money demand would not lead to a change in interest rate.

But according to me when the demand for money goes up it shifts the money demand curve to the right and above. Given the money supply and fixed price, this should lead to a rise in interest rate.
Same confusion arises when we reduce the real money supply under the liquidity trap situation. Book says that interest rate will not go down when money supply goes up but it says nothing about money supply going down.


texts: What happend to the dollar value in the time of the housing crisis

texts:
I am wondering what happens to the value of the coin in a country with an housing crisis. Take the USA as an example: They had a housing crisis and I wonder how it effected the value of the dollar and why?
In addition to this particular example, are there any general effects on a currency that are observed in countries in which a real estate bubble burst?


texts: Why are there so many micro-enterprises in the European Union?

texts: The European Union single market is known for it's high number of small- and medium-sized business enterprises, but especially the nr of micro-enterprises (less than 10 people). Why is this?


texts: Robinson Crusoe economy with saving and borrowing

texts:
I am working with a Robinson Crusoe economy, i.e. an economy in which there is no production and only consumption is possible: there are only two goods, $x_1$ and $x_2$.

There is just one individual that lives two periods. He has endowments $\omega_1$ in period 1 and $\omega_2$ in period 2. He can borrow one unit of food in period 1 in exchange for $1 + r$ units of food in the next period. And he can save part of $\omega_1$, without getting any return, to consume it in period 2.

I tried to work out something but I have some problems since I obtained a budget constraint that has different slopes for different allocations. Do you have any hint?


texts: Is a universal basic income possible in the United States?

texts:
Is a universal basic income or unconditional demogrant possible in the United States? (For the sake of specificity I have focused the question on the US, though the question is certainly interesting in all settings.)
It seems that without some restructuring, the answer is no. But, in order to entertain the idea (and pushing politics aside), what programs could/would be cut in order to fund a reasonably sized basic income? What size of basic income could be afforded, if any? How would tax rates have to change?

Of course the answer depends on the size of the basic income. It would be interesting to see how the answer would change for multiple values.


texts: What's a « 1-Ratio» ? From a text on Capital's share of GDP

texts:
In this article, the writer talks about the «capital share, as a percent of GDP — here just 1 – labor share percentage»

What's this 1-labour share percentage?


texts: Teaching changes in "demand" v. "quantity demanded"

texts:
I am always struggling with teaching this one.

The terminology of standard intro textbooks is unfortunate, although it's so pervasive that we probably have to live with it.

By a "Demand", intro textbooks really mean a "Demand function" (but talk about "Demand" either for concision, or because they think the word "function" will scare intro students).
Having shied away from calling a function a function, intro textbooks then cannot speak of "the demand at price $P$" (just like you would speak of the value of $f(\cdot)$ at $x$), and need to introduce the awkward terminology "quantity demanded at price $p$".

That's an ok compromise, until you reach the usual section on "changes in the quantity demanded v. changes in demand".

There, students are often told that we should only talk of a "change in the quantity demanded" if the demand function $D$ is fixed, and that such "changes in the quantity demanded" must be the consequence of a change in price only (typically following a change in supply).

Then how can I speak of the comparison between $D(P) > \tilde{D}(\tilde{P})$ without being terribly confusing to my students?

If I say,

  1) "Following a change in demand from $D$ to $\tilde{D}$, the equilibrium price changed from
  $P$ to $\tilde{P}$ and the quantity demanded therefore changed from $D(P)$ to
  $\tilde{D}(\tilde{P})$",

I think I am guaranteed to confuse the hell out of them, because the textbook essentially tells them that "we should never talk of a 'change in quantity demanded' unless the demand function remains unchanged".

At the same time, is there any other ways to formulate 1)?

Should I use a different word and speak, e.g., of a "move" or a "movement" in quantity demanded from $D(P)$ to $\tilde{D}(\tilde{P})$  to avoid any confusion with a "change in quantity demanded".
Or is it better to be explicit about the ambiguity?
Or is it better to try and avoid the issue as much as possible?

What is your experience teaching this? What are your tricks to get around this terminological difficulty? (Or, maybe, why do you think it is not a terminological difficulty at all?)


texts:
Why has competition evolved to be the leading principle of market based economies? Can this sustain in the long run?

I am thinking about cooperation as a better principle of doing things in the long term... However, this probably goes back to consumerism and maximizing utility by consumers and thus a necessary "competition" between manufacturers...

In the end, consumerism (consumption?) may lead to environmental damages.


texts: Intuition of Shephard's Lemma in Reverse

texts:
I am not sure how to word this question. I understand the envelop theorem pretty well and as a result Shepard's Lemma. The proof is relatively straightforward. I am getting stuck on the intuition behind integrating the Hicksian demand function and getting the (total) expenditure function as a result. It seems like this would be some sort of reversal of the envelope theorem.
Suppose we have a two good world. A typical Hicksian demand function can be written as a function of p1, p2, and utility. Using the fundamental theorem of calculus and the envelop theorem, I know that integrating this function over an interval with respect to p1 or p2 will give us back the total expenditure function. So if we integrate over a range with respect to p1, for example, it gives us the change in total expenditure. What's not clear to me is how expenditures on good 2 are being included (intuitively).
In a single-variable integral, it is easy to understand this intuitively. If we have x and we integrate a function f(x) over an interval it is easy to understand this as adding up the infinitely small changes times the rate of change of f'(x) to get the "total" change in f(x). In the Hicksian case, we seem to be adding up the infinitely small changes in price of good 1 times the rate of change (Hicksian demand for good 1) and assuming expenditures on good 2 are constant when they almost certainly wouldn't be. Is there a better way to understand this? Are expenditures on good 2 implicitly included?


texts: Comparison of coefficients in log(y_t) and log(y_t/y_0) LHS specifications in LP-IV

texts:
I would have a question related to econometrics. Likely not all the details are needed, but please bear with me.
My goal is to use local projection with an instrument to find out the response of an outcome variable $y_{t+h}$ (in horizon $h=1,2,..,k$) to a shock that happens at time t. (The shock is instrumented, other controls are included as well.)
In one specification I include the outcome variable in logs, as $ln(y_{t+h})$, and get that the coefficient corresponding to the shock is positive but decreasing as h horizon increases. I suppose the interpretation of the result here is that the outcome variable increases by $\beta_h$ % in response to 1 unit shock compared to what it would have been without the shock in horizon h.
In another specification, I include the outcome variable as $ln(y_{t+h})-ln(y_{t-1})$, looking at the growth with respect to time t-1. Here I get that the coefficients are negative and are also decreasing in time. I guess the interpretation is that the growth of y relative to time t-1 value decreases by $|\beta_h|$*100 percentage points compared to what it would have been without the shock after h time-units.
I've been wondering: how can these two results be reconciled? One says that the outcome variable is higher than it would have been without the shock, and if I understand things correctly, the other result says that it is lower. Is there any connection that could be made between the two results?


texts: Why did the proportion of household savings in the USSR decrease during its transition period?

texts:
This question came out as a multiple-choice in my A-Level Economics exam. The answer choices were:

A) Rising income inequality
B) Increased availability of consumer goods
C) Rising medical expenses

Without actual information, the question is debatable. I am not sure why this we were asked to hypothesise without adequate information.


texts:
What are the economic justifications of the size premium?

In factor pricing models like the intertemportal capital asset pricing model (I-CAPM) or arbitrage pricing theory (APT), it is assumed that exposure to one of these factors represent exposure to some sort of undesirable risk. In this question, I'm trying to understand how to interpret exposure to size (measured by market capitalization) as exposure to some form of common risk.

This question is related to this question about momentum: "How is momentum justified as a common risk factor?"


texts: How would Greece "temporarily" leave the Eurozone?

texts:
Amongst the negotiations between Greece and the Eurozone leaders, there currently exists the possibility of Greece leaving the Eurozone for five years.

Does this imply Greece would have to use a different currency for only the next five years?


texts: What happens to a country with lot of debt?

texts:
As far as I know, debt is a way to get hands on extra money which will burden the future governments.

What if every successive government keeps adding to the national debt?
Isn't it like free money? You can win by developing the country and keep adding to the debt as well... maybe forever?
The US has a debt of $18 trillion. How has it affected United States? Why should the government even bother to repay?


texts: Why is there a need for multiple cryptocurrencies?

texts: Why can't all blockchains use the same cryptocurrency like Bitcoin? Why do each of them have to invent a new cryptocurrency?


texts:
I'm working with the following task:

"You are convinced that the bond market is dominated by long-term investors. Hence, you have your own view on the liquidity premium/discount that forward rates embody. Given that, do you think that a duration of 3 years for this portfolio is a good idea or a duration of -3 years would be better?" (The provided yield-curve is upward sloping).

First, liquidity discount and premium are in contrast to each other?

Second, could anyone explain why/if the forward rates embody a liquidity discount because the market is dominated by long-term investors?

What does it involve if the forward rates embody a liquidity discount, and what will this imply for the future expected rates?

This is the solution, but it doesnt make much sense to me:

"Market dominated by long-term investors ⇒ Liquidity discount ⇒ E[r] > f
Upward sloping yield curve ⇒ f > y0
In other words, forward rates above current yields. And, on top of that, we need to take into
account the liquidity discount to obtain the expected short rates. Hence, future interest rates are expected to increase and, thus, one would prefer a portfolio with a duration of -3."


texts: What is the difference between trade deficit and current account deficit?

texts: I read this article and still don't understand the difference. "Spends more money on what it imports compared to the money it receives for what it exports" (how it defines current account deficit). "There is more being bought by the country than there is being sold" (how it defines trade deficit). Isn't this the same thing described by different words?


texts: Why was protectionism considered bad in the great depression?

texts:
its said that "there is all-but-universal agreement that the adoption of restrictive trade policies was destructive and counterproductive and that similarly succumbing to protectionism in our current slump should be avoided at all cost."

However, doesn't that depend on your net exports? so if more is leaking from your economy, than is being injected, protectionism is a good strategy, right?


texts: No competitive equilibrium for pooling contracts

texts:
In class we dealt with insurance economics and, specifically, adverse selection due to information asymmetry. As one possible solution we considered pooling contracts, i.e. the same contract for both high- and low-risk households for some average price. We showed and I understood why the high-risk households now would buy more insurance than the low-risk ones and thus everybody would act as if they were low-risk whether this is true or not. What I am not sure about is why there wouldn't be an equilibrium in a competitive market.

It's clear that the low-risk individuals have reason to go for a lesser premium and, if some other insurer would offer this, then they would go there.

Therefore, my questions are:

1) So why won't there be an equilibrium? I would think that if a new insurer appears with a better deal than the pooling contract, then there would again be the problem with adverse selection. Hence, the new insurer wouldn't appear and offer a better deal in the first place?

2) I also read that this is pareto-inefficient in that it disadvantages the low-risk households (obvious) but does not benefit the high-risk households. The latter point I do not understand since the high-risk households will have a higher demand since the pooling contract situation makes the insurance relatively cheap. Isn't that a benefit?


texts: Where to find GDP for sub-sectors of a Nation?

texts: I was recently doing a presentation for Economics Class in which I wanted to break down the GDP of the UAE by Emirate. I could not find anything on the internet about this, although a quick google search reveals GDP contributions for each state last year in the U.S. to the overall national GDP. Is this information publicly available? If so, what are some good sources that break down countries' GDP into regional contributions?


texts: Literature request: Any articles on the signalling theory / game theory / asymmetric information of the firms' recruiting process?

texts:
I'd like to read more about the recruiting process of firms. Signalling theory and game theory can be a useful tool to better understand this phenomena.

For example:

Applicants, who ask for higher wages, tend to have a higher willingness to work. Then a good strategy is to ask for higher compensation, in order to get the job.
There are companies at Job Fairs, which try pretty aggressively to get e-mail addresses / cellphone numbers. Companies with higher reputation don't have to be that active on the job market, applicants will "automatically" gravitate to them.

Maybe the second case is a bit stupid, but I gave you a hint. Do you know any articles on the signalling theory / game theory / asymmetric information of the firms' recruiting process? Thank you in advance.


texts:
Economist and philosopher Amartya Sen posited that no social system could guarantee:

A minimal sense of freedom in social choice
Pareto efficiency

His original article can be found here.

In his original motivating example, he gave an example of two people faced with a scandalous book. One person thinks it's hot garbage and would prefer no one should read it, but would rather put themselves through the book than see the other person read it and enjoy it. The second person, while preferring to read the book than it be destroyed with no one reading it, would think it'd be hilarious if the first person were forced to read it.

In this scenario, suppose you let each person have some degree of choice in the matter of who ends up reading this book. So the social planner will consider whether each person would rather they themselves read the book, or throw it away. Their choices will be directly put into the social planner's preferences.

Person 1 prefers not reading the book to reading it.
Person 2 prefers reading the book to not reading it.

So the social planner will therefore have the preferences:

$$\text{P2 reads} \succ \text{no one reads} \succ \text{P1 reads}$$

And the social planner will have the second person read the book. This is not a Pareto optimal result! Both people would rather the first person be made to read the book.

There are a few ways out of the paradox:

Let the two people make a contract to bargain their way to a better result.
Let them express their "preferences" sequentially, as a game.
Lighten the restriction on needing Pareto efficiency specifically
Only care about societies where everyone respects each others' choices and don't create weird externalities (societies that don't do this are the only ones that have this paradox).

So my general questions are:

  Are there other solutions to the Liberal paradox?
  Beyond abstract ideas of social justice, what practical implications could the paradox have on markets?


texts: I need something like “how to calculate equilibrium price for complete idiots”

texts: My grandfather raises, sells and resells livestock and I want to help him by calculating when and for what price to (re)sell or buy livestock. As far as I understand(although I have a hunch that I need something more), I need to calculate the so-called "equilibrium price". I know only school level of mathematics(I know how to plot functions, find a derivative, find a primitive function).


texts:
I have recently been stumped on a microeconomics question where it gives a monopoly firm, its operating ATC (average total cost), price (average revenue), and quantity traded. First thing it wants me to do is to calculate marginal cost (MC). However, the information I am given is only at a single point, so how am I going to calculate it? Here it gives ATC = 30,Price=
300, and Q = 1,000,000. That's all the info the question gave me. I've had the thought that since this is where the firm is operating, then MC = MR. So if I can find MR at this quantity traded, that will be the MC. However, I am also stuck calculating MR.

Here's all the working I've been able to do:
TR = AR x Q = 300 * 1000000 = 300 m.
TC = ATC x Q = 30 * 1000000 = 30 m.
I've also drawn a graph of ATC, AR, MR, and MC, but without knowing the y-intercept of the AR and MR functions it looks unlikely that MC = MR can be evaluated. I'm aware that the MR curve has twice the slope of demand curve, but that does not give any help with finding MR from the Price. Neither does ATC = MC since monopolies are not operating at the efficient scale.

Thanks!