texts: What are possible solutions when promoting competition is not applicable?

texts:
Usually, more competition means lower prices and higher quality as less effective businesses go out of business. However, it appears that it's not always the case. When there're a lot of health insurance companies, each of them has relatively little bargaining power with service providers (hospitals) and, as a result, prices are significantly higher compared to a hypothetical government-funded single-payer system. Is there any free-market solution? What libertarian scholars (they exist, don't they?) would suggest?

There's another example, social networks. Facebook was selling user private data without them realizing it but never went bankrupt or lost a lot of users. It's evident to me that it's due to its oligopolistic nature. You can't nationalize Facebook or do something similar to what is proposed for health care by American presidential candidates like Bernie Sanders. You also can't promote the creation of many new tiny Facebooks because the social network user wants to have all their friends, family members, colleagues, favorite celebrities, etc. available in one place so people would unwittingly gradually monopolize "the social network market" back by opting for the network with more users than its competitors.

Are there any studies that found any umbrella solutions (preferably, ones that don't involve socialism) for cases when simply promoting competition doesn't work?


texts: Are there any surveys of economists on the determinants of healthcare price increases in the US, particularly over several decades?

texts:
It was asked recently on politics SE what drove healthcare (actually healthcare insurance) prices in the US to rise faster than the CPI.
Neither of the top two answers resorted any actual econometric analysis, but both illustrate some popular ideas/answers to this question namely:

demand for healthcare is inelastic; healthcare/insurance providers basically extract economic rent (most upvoted)
the market is not free due to licensing and other forms of regulatory capture (2nd most upvoted & accepted answer)

In a comment below the 2nd answer from this short list, it was pointed out that other confounding factors may exist, e.g. price increases due to technological innovations (e.g. MRI) that suddenly everybody wants once they become available.
Looking at Wikipedia's article on this [which none of the P.SE answers actually bothered with], it does say for example that:

The Congressional Budget Office analyzed the reasons for healthcare cost inflation over time, reporting in 2008 that: "Although many factors contributed to the growth, most analysts have concluded that the bulk of the long-term rise resulted from the health care system's use of new medical services that were made possible by technological advances..." In summarizing several studies, CBO reported the following drove the indicated share (shown as a range across three studies) of the increase from 1940 to 1990:

Technology changes: 38-65%. CBO defined this as "any changes in clinical practice that enhance the ability of providers to diagnose, treat, or prevent health problems."
Personal income growth: 5-23%. Persons with more income tend to spend a greater share of it on healthcare.
Administrative costs: 3-13%.
Aging of the population: 2%. As the country ages, more persons require more expensive treatments, as the aged tend to be sicker.

According to Federal Reserve data, healthcare annual inflation rates have declined in recent decades:

1970-1979: 7.8%
1980-1989: 8.3%
1990-1999: 5.3%
2000-2009: 4.1%
2010-2016: 3.0%

While this inflation rate has declined, it has generally remained above the rate of economic growth, resulting in a steady increase of health expenditures relative to GDP from 6% in 1970 to nearly 18% in 2015. [CDC cited for this last sentence].

What I want to ask here: are there any (IGM-like) surveys what economists think were the main factors for the faster-than-CPI US healthcare cost inflation, particularly over longer time frames? Does a survey of economists find agreement for example with the CBO's conclusion that technological changes were the main factor over longer time frames?
If there are no such surveys, are there highly-cited economics papers that substantially disagree with the CBO on the determinants?


texts: Calculation of theoretical futures value

texts:
we form a stock index by using only two stocks in the index.

One of the stocks is the Stock-A. The current selling price of the stock-A is 103 dollars and the second stock is the stock-B. The current selling price of the stock-B is 56 dollars.

The current value of the index is equal to 267 dollars. Stock-A pays a dividend of 13 dollars in 1 months.

Stock-B pays a dividend of 1.3 dollars in 2 months.

We form a futures contract written on this index expires in 3 months.

Currently, the finance cost of carry in the market is 0.42% per month.

How can we calculate the futures contract's  theoretically fair value which is monthly compounding.

Should I use the formula $f(T)= S_{stock}(1+r)^T-D_T$ ?

I don't understand how can I use this formula when for two dividend payments and two different stocks exist?

$$Futures value= 267+103(1.0042)^{3/12}+56(1.0042){3/12}-(13+13+1.3)$$
Can you please give me a hint to solve this question?


texts:
Are there results that says the monotonicity of one measure of risk aversion implies the monotonicity of the other measure?

For example,

Does constant relative risk aversion imply decreasing absolute risk aversion?
Does constant absolute risk aversion imply decreasing relative risk aversion?

and so on.


texts:
There's an exercise I cannot wrap my head on. I actually have the solution to the problem, but still I don't quite understand it.

Let an economy be composed of two consumers $A$ and $B$ and two goods $X$ and $Y$, such that $Y$ is produced using $X$ with production function $Y = \sqrt{5X}$. We suppose $A$ and $B$ have identical utility function $U(X,Y) = XY$. Initial endowment of the economy is $X = 1$ and $Y=0$ Find the Pareto-optima of this economy, and express them as a function of $X_A$, the quantity of good $X$ allocated to consumer $A$.

So what I did to find those optima is to put $MRS_{XY}^A = MRS_{XY}^B$ subject to constrains $X_A + X_B \leq 1$ and $Y_A + Y_B = \sqrt{5(1 - X_A - X_B)}$. But it seems to me that I got to few equations to actually solve the problem. What I find is, putting $X = 1- X_A - X_B$:
\begin{align*}
Y_A = \frac{\sqrt{5X}}{1 - X} \cdot X_A
\end{align*}
but I can't seem to be able to go any further... In the solution, it reads:
\begin{align*}
\frac{Y_A}{X_A} = \frac{Y_B}{X_B} (=\frac{Y_A + Y_B}{X_A + X_B}) = \frac{\sqrt{5}}{2\sqrt{X}}
\end{align*}
without explaining how to derive the last equality.


texts: Are there stable improvements of the Ramsey-Cass-Koopmans model?

texts:
The Ramsey-Cass-Koopmans neoclassical model of growth is saddle path stable. In other words, it is stable upon perturbation from the steady state on a one-dimensional line, but is unstable towards a generic perturbation in the two-dimensional space of capital/labor ratio and consumption.

My question is whether there are (realistic, standard) neoclassical growth models that are stable upon perturbation (beyond the simplest Solow type models) ?


texts: Does a determinant ever have its own interpretation in economics?

texts:
I know there are applications of determinants in economics to compute equilibrium, aide in identifying profit maximisation/cost minimisation and in calculating elasticity of substitution.

However, is there ever an economic interpretation Just the determinant on its own? What would the scenario be?


texts:
I have an unbalanced panel dataset of around 3000 firms for 5 years. My goal is to see if female-owned firm are less likely to survive, so I have a logit model with female-owned dummy as the key independent variable.

The cross-sectional models for year 2007 and 2009 (if year == 2007, if year == 2009) have significant female-owned variable. However, if I try to run a fixed effect logit across all 5 years then the female-owned coefficient is highly insignificant. I have included the i.year dummies in the panel model, and interact female-owned##year2007 but so far the coefficients are not significant.

So how do I interpret this sort of results? Thank you in advance for your help!


texts: Theories about how lack of supply can feed into lack of demand

texts:
Are there any economic theories supporting the possibility that lack of economic supply can result in a reduced economic demand?
As an example, let's say a product exists, an electronic product let's say.  Due to supply chain shortages, suppose the end  product cannot be effectively created in large supply.  An example is how coronavirus has impacted the supplychain and thus product manufacturing.
I'm searching for theories that may lead demanders to decide to back away as a result of the lack of supply.  Perhaps the unit cost may be the same on the product, but demanders may have more difficultly in finding the product, and realize that there is an additional hassle to obtain said product.  This effectively amounts to an additional marginal cost on top of the quoted price on the product.


texts: Is there a super term for goods/products and services?

texts:
A business can sell "goods" (/"products") and "services".

Is there a term that encompasses both of these?

Various words may fit (e.g. "offering"), but I'm looking for the technical term, if there is one.


texts: Max of a profit function: partial derivative of an integral function?

texts:
I am struggling with the maximization of the following profit function in a New-Keynesian model. Here there is the FOC.
$$\frac{\delta}{\delta Y_t(i)} P_tY_t- \int_0^1 P_t(i)Y_t(i)di = \frac{\delta}{\delta Y_t(i)} P_t\left[\int_0^1 {Y_t(i)}^{\frac{\epsilon-1}{\epsilon}} di\right]^{\frac{\epsilon}{\epsilon-1}} - \int_0^1 P_t(i)Y_t(i)di = 0 $$
$Y_t(i)$ is the demand for the intermediate good and $Y_t$ is the demand for the final good. The solution should be:
$$ \frac{\epsilon}{\epsilon -1}  P_t \frac{Y_t}{Y_t^\frac{\epsilon -1}{\epsilon}} \frac{\epsilon -1}{\epsilon} Y_t(i)^{-\frac{1}{\epsilon}} = P_t(i) $$
I tried to apply the Leibniz integral rule. However, I cannot understand how to behave when taking a derivative of an integral function.
May anyone explain to me the steps (and the mathematical theory) in order to get the correct solution?
Thank you in advance for your patience and your support.


texts: Converting word definitions of Pareto-Optimal into math symbols

texts:
I'd like to have a mathematical version of the following two definitions just because I remember symbols better than words. But I lack the math prowess to convert them from words to symbols. Can someone assist me?

Def 1:

A feasible allocation is weakly Pareto-optimal if there is no alternative (feasible) allocation such that everyone prefers the alternative to the original.

Def 2:

A feasible allocation is strongly Pareto-optimal if there is no alternative (feasible) allocation such that at least one person prefersthe alternative, and everyone else is indifferent.


texts:
In 2008 the UK deficit was around £10Bn - in 2010 it had reached around £100Bn.

I realise this was due to the "global recession" but exactly why did the deficit grow so much?

My understanding is the deficit is the UK Treasury income less expenditure, so did income drop (and why) or did expenditure increase and again, why?

I imagine the recession would show a reduction in tax receipts but £100Bn seems excessive and also there may be some increased borrowing leading to increased debt payments but again the figures seem huge.

Was it the bank bail-outs to blame?

My data is from here.

Finally is austerity likely to return the UK treasury to surplus given that there is a finite amount of spending that can realistically be cut?


texts: Why does lowering stock rate of returns increase stock prices?

texts:
(i) I don't understand point 1 beneath. Why does the Federal Reserve's buying assets lower risk premiums?

(ii) I don't understand point 3 beneath. Why does lower stock rate of returns increase stock prices? Won't lower stock rate of returns lower stock demand? Won't some investors buy something else other than stocks?

Why the stock market is going up... and it's not because the Coronavirus is going away : investing

  I think I know why the stock market is up... and it's not because the Coronavirus is going away.

  It requires some macroeconomic and finance knowledge, but maybe, just maybe:

  Fed actions (buying assets) are lowering risk premiums
  Fed actions (lowering rates) are lowering asset yields overall
  Both of these actions lower stock yields, which increases stock prices
  Lower stock yields = longer duration for stocks (dividend discount model)
  Longer duration + lower stock yields = less overall sensitivity to the lower expected earnings for next 12-24 months due to Coronavirus
  Plus... a maybe.... maybe long-term inflation expectations due to printing money = higher earnings (in pure dollar terms) for cash flows 5-30 years from now

  Run those things through a discounted cash-flow model, and you get higher stock prices. Near-term earnings become less important to the overall picture.


texts: Somers’D and Gini coefficient: differences

texts:
I would like to know what are the differences between somers’d value and the Gini coefficient.
I have the following values for factors:

Factor     Somers’ D

Factor 1   -0.1
Factor 2   0.24
Factor 3   -0.01

In terms of Gini, I should change signs from Somers’D column:

Factor     Gini

Factor 1   0.1
Factor 2   -0.24
Factor 3   0.01

Is it correct? Could you please tell me what changes between the two representations?


texts: Why does Ricardian Equivalence not hold when there are different borrowing and lending rates on the market?

texts: If you can propose any explanation (intuitive, graphical or algebraic), I will appreciate it


texts: Modelling the effect of crisis on unemployment

texts:
We want to estimate the effect of crises on a country's unemployment rate and distinguish the strength of this effect according to the debt level in a country (i.e. via the interaction effect crisis x debt level). We also control for country fixed effects and time fixed effects and a bunch of control variables.
However, we have the problem that the crises a) probably have a delayed effect on the unemployment and b) that the crises themselves may last for a longer period of time. We are planning a dynamic panel model. How do we need to specify this in order to address the two problems mentioned above? Is it sufficient to include the lags of the crises in the model?


texts: Why don't suppliers increase price after a positive demand shock?

texts: Forgive me, I am new to economics. Suppose there's a demand shock in the pork market and D1 shifts to D2. Why not keep quantity supplied fixed at 220 and then raise prices to $3.70, instead of moving from e1 to e2? It seems to me that suppliers stand to make higher revenues by only raising the price, because 3.70 * 220 > 3.50 * 228.


texts:
This is a reference request.
I'm interested in auction design problems of the following form:

- Consider one seller and many buyers.

- The seller seeks to sell multiple items where each item has multiple units.

- Each buyer is interested in getting exactly one unit from only one item.

- The seller wants to maximize the social welfare of all buyers.

Has this problem been studied in the literature? I have tried looking at combinatorial auctions, matching markets, and multi-parameter markets but so far haven't been lucky.
I'd appreciate any hints of direction where to look. Thank you!


texts: Why do banks take deposits if they do not need them to make loans?

texts:
I have taken some economics courses in university, where I was introduced to fractional-reserve banking. From my understanding, in fractional-reserve banking, the bank has motivation to encourage deposits from depositors, because a large part of these deposits can then be lent out as loans. A small part of the deposits have to be retained as "reserves" (hence the term "fractional-reserve banking"). The bank profits by earning more interest on the loans than it has to pay to the depositors.
However, I read several articles that contradict my understanding. In an article from the Quarterly Bulletin of the Bank of England - Money creation in the modern economy:

The reality of how money is created today differs from the description found in some economics textbooks ... Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits.
[...]
In reality, neither are reserves a binding constraint on lending, nor does the central bank fix the amount of reserves that are available.
[...]
While the money multiplier theory can be a useful way of introducing money and banking in economic textbooks, it is not an accurate description of how money is created in reality.

In light of this, I am forced to re-evaluate my understanding of fractional-reserve banking. The most pressing question I now have is: if banks do not need deposits to create loans, why do they take deposits? What motivates retail banks to allow retail customers to deposit their money if banks have no need for deposits to make loans?


texts: Net Positions vs Gross Positions as they Relate to the Current Account

texts: What is the difference between say, gross asset and liability positions and net asset and liability positions? I mean these terms in the particular way that Cavallo and Tille use them in their 2006 paper "Could Capital Gains Smooth a Current Account Rebalancing?" Can they be expressed as an accounting identity? The key factor in this paper is that gross asset positions change but NFA positions are kept constant. This is true by construction, but how? I could understand this if I just understood generally how net and gross positions are different.


texts: Is this Cost function concave or convex?

texts:
Given the following cost function, where t is the quantity of some product.

$$C(t) = 1/3t^3 - 7t^2 +11t + 50$$

here is a graph between $t= 0$ and $t = 25$

We are asked if this function is convex or concave?

Technically it is neither, but I am asking, in the context of economics, do we have to define intervals and say, between $0$ and $4.11$, it is concave, and for $t>4.12$ we have a convex function?


texts: Does the federal reserve create any type of deadweight/welfare loss?

texts: In microeconomics, we learn that when a good is overproduced or under produced, there is a dead weight loss associated with it. It seems like the same concept would apply to macroeconomics, where the Federal Reserve, by pumping money into the financial market, creates artificially low or high interest rates and causes spending on investment below or above what it would be naturally. Do these interest rate changes cause any type of microeconomic welfare loss?


texts: Perfect Competition and costs of production question

texts:
The table below shows the marginal cost of production for a firm that is in an industry that is perfect competition. The market price of the product is $300. Use this information to answer the questions below.
$$quantity \quad marginal \ cost$$
$$1 \quad 270$$
$$2 \quad 210$$
$$3 \quad 180$$
$$4 \quad 240$$
$$5 \quad 285$$
$$6 \quad 315$$
$$7 \quad 345$$
$$8 \quad 375$$

Suppose the firm’s total fixed costs are $200.
a. What quantity does the firm produce in the short run to maximize profits?
b. What are the firm’s profits in the short run?
c. Does the firm stay in business in the long run? Why?


texts: Probability of the event knowing that I received no informations

texts:
First I want to thank you if you pay attention to my post. I apologize if it seems elementary to you, note that I searched a lot an answer before posting.

I have a particular informational framework where there are 3 events denoted A, B, C.

A= This guy is cool.

$\overline{A}$= This guy is not cool

B= Someone is here

$\overline{B}$= No one is here

C= He tells me if he is cool

$\overline{C}$= He does not tell me if he is cool

P(A), P(B) and P(C) are the probabilities associated with these events.

I assume that if the person who can advise me is not here, she cannot tell me something.

What is the probability that this guy is cool given the fact that no one is telling me something?

I propose the following formula:

$P(A|\emptyset)=\frac{p(A\cap B \cap \overline{C})+p(A\cap\overline{B})}{P(\emptyset)}$

Where $P(\emptyset)=P(A\cap B \cap \overline{C})+P(\overline{A}\cap B \cap \overline{C})+p(\overline{B})$.

Knowing the Bayes rule the previous equation bothers me because it contains a kind of union between events on the numerator. Maybe this is because there is a kind of redundancy between event B and C. My question is, is it the correct formula to compute the conditional probability in this framework?

Thank you


texts: Subgame perfect equilibrium and expected profit

texts:
I am so confused because I cannot set up the monopolist's profit maximization problem.What I did is the following one:

Any help will be appreciated. Thank you.


texts: What is the difference between shareholder's equity, equity, and book value?

texts:
I have been doing some reading and I have found that shareholder's equity is equal to the company's total assets minus its total liabilities. Equity is apparently defined in much the same way. Book value is equal to the total assets minus intangible assets minus liabilities. So what is the actual difference between all of them?

Intangible assets seem rather hard to quantify, if I bought a house in a good neighborhood, its location could be called an intangible asset, right? But how do I measure this asset with a monetary value so that I can subtract it from its actual value?

What is the difference between all three of these concepts?


texts: What is a stock exchange, I understand that it is a place where one buys and sells shares but I would like to know in more detail.


texts: Financial investment in the composition of GDP

texts:
In the production function Y = C + I + G + NX

Does foreign investment in domestic assets (i.e. foreign buying of domestic bonds) - and vice versa - come under the Net Exports variable? Which denotation does domestic investment in domestic assets come under? The Investment variable (I), one would think, however I seem to recall being told that the Investment variable does not include financial investment, so does it come under saving?


texts: Isn't recession is when there's an actual decrease and not just a less rapid growth?

texts: I heard that for 2020, the global economic forecast is recession. The growth will be less than 2.5%. But isn't recession is when there's a decrease in GDP (for two consecutive quarters, as I recall), not just a lower growth? Why is the term applied so unusually (unusually, right?) in this case?


texts: Can You Help Me Understand this Definition of Economic Efficiency

texts:
Economic Efficiency:

"A broad term that implies an economic state in which every resource is optimally allocated to serve each person in the best way while minimizing waste and inefficiency. "

And here's the part I don't understand:

"When an economy is economically efficient, any changes made to assist one person would harm another."

Can someone please unpack that last part for me?  I'm not sure I understand it.


texts: Have any chemical reactions been used to simulate CTMC for economic simulations

texts:
Assumption and Question
Given that many economic models can be viewed as Continuous Time Markov Chains, and that many chemical reactions are also described as such, have any experiments been conducted comparing a queuing model (for example) with an enzyme-mediated reaction?
Inference
If physical systems could be found that predictably react in a way that can be meaningfully correlated with models, could enzymes (or other physical inputs) be swapped (in a manner akin to tweaking variables), to allow for multiple simulations to be run simultaneously, especially with large sample sizes (given the order of magnitude of Avogadro's number)?
Has this been tried, and is anyone publishing on such systems?


texts: Why is the cash in circulation on the rise in rich countries?

texts:
The amount of cash in circulation is on the rise in rich countries (US, EU, etc; except the cashless economy, Sweden). In the digital era, isn't this phenomenon contradictional?

For example, here's the ratio of the value of cash to GDP in the Euro Area:

Cash: Notes and coins in circulation (Currency)

Possible reasons:

Shadow economy is growing.
More cash = more corruption.
Lack of financial literacy.
Feeling of safety. Lack of trust towards technology and banking
system.

What is the main reason why the cash in circulation is on the rise in rich countries?


texts: Considering how USD enters the market, is the USD actually unbacked? Could the USD represent a unit of a “fund” of securities held by the Fed?

texts:
From my understanding, all new money enters the market either 1) by the Fed lending it to banks, so the Fed essentially owns bonds in the exchange, or, 2) The Fed purchasing other financial assets. So for each new dollar, it is represented by some new security in the Fed's "vault". This doesn't sound like it's unbacked to me. Hypothetically, if the Fed and the dollar "went under" would there not be some obligation to distribute these securities among all dollar holders?

Furthermore, what is stopping the Fed from acting like a fund where each dollar represents a (very) small percentage of all securities in "the vault". To me, it seems like this would create a basis for value of the USD. If a USD-holder were able to trade in his dollar for tangible securities, would this not increase his confidence in the system itself? What's the reason the Fed doesn't operate this way?

Very interested in hearing more educated responses to this, thanks in advance.


texts: Price when both supply and demand have market power

texts:
I have an intermediate sector that operates using labor only. There is 1-1 pairs between firms and workers, with profits

$$\pi = (Ap - w)\cdot 1$$

$p$ is the price, $A$ productivity, $w$ wage. Entrance to this market comes through a Mortensen Pissarides matching market, where vacancies and unemployed meet. Free entry and search cost $c$ implies

$$ \frac{c}{q(\theta)} = \pi $$

where $q(\theta)$ is the matching rate given market tightness.

There is matching on the final goods market happening as well, which is why there is a free-entry given search cost $k$ to becoming a final goods producer. The details are not important here, but the final goods producer operate without using labor. Let $e$ denote the measure of intermediate firms (since it's also the employment rate), and $s$ the measure of final firms.

I'm wondering how prices are determined here. Wages are given by Nash bargaining, such that

$$ w = \arg\max_{\tilde w} \beta \log (\tilde w - U) + (1 - \beta) \log(\pi(\tilde w))$$

for some outside-option value $U$. However, I wonder how the price of the intermediate good $p$ is determined, given that firms of both sides ($e$, $s$) have some market power. I'm happy to do additional assumptions if necessary, as long as the approach is in line with what has been done in the literature.

To be frank, I don't care about details on this margin at all, I just need closure.


texts:
I am having a hard time deciding for this question:

If all quantities produced rise by 10 percent, and all prices fall by 10 percent, which of the following occurs?

A) Real GDP rises by 10 percent, while nominal GDP falls by 10 percent.

B) Real GDP rises by 10 percent, while nominal GDP is unchanged.

C) Real GDP is unchanged, while nominal GDP rises by 10 percent.

D) Real GDP is unchanged, while nominal GDP falls by 10 percent.

I think it is either A or B, because I know that real GDP rises but i'm not sure what happens to the nominal GDP. if anyone can help, it would be much appreciated.


texts:
People say that central bank with autonomy is needed to avoid political business cycle but then how do we explain the existence of central bank in arab oil exporting countries like saudi arabia where government has no election to run periodically?
Why can't the government do the work of central bank in such countries ?


texts: How much of the Greece's public debt is created by its trade deficit?

texts:
How much of the Greece trade deficit reflects into it's public debt?
Each year, Greece is importing about two times as much as it's exporting. In some years, even three times more. How much of that is converted into public debt?

Assuming that the Greek citizens and companies are not sitting on large amounts of cash reserves to afford to spend double the money they make and they can't make such huge credits to cover such expenses (and that looks very much to be the case), the only way to cover that deficit that I can think of is this: The government doesn't have enough money to pay the people working in the public sector, then it borrows money from external creditors, making public debt, then it pays the wages of those workers, and then the workers buy imported goods and at the end of the year, Greece imports more than it exports. And then it's the public debt that supports/fuels that huge trade deficit.

I can't imagine another way of having trade deficit than having reserves or by making private or public debt. But maybe there are such ways and that's why I'm asking.

Later edit: I managed to squeeze another example out of my brains: The Greek ship owners (who don't pay taxes) make such huge profits that they can afford to import materials and technology that's worth 35 billion Euro each year, so they can build more ships for their business. They build the ships and they keep them, doing a lot of imports and no exports. But that works only if their shipping services do not count as exports.


texts: How to make sense of so many conflicting theories and ideas in the field with an open mind? Is every school of economic thought as valid as the rest?

texts:
'm a junior economics major and lately I've been in a sort of crisis because I feel like I'm not sure what economic ideas I believe in anymore. Don't get me wrong, I love reading anything that has to do with the subject. Thing is, I just feel like, for somebody as skeptical as me, it's tough to remain convinced of anything I learn. I used to blindly agree to mainstream econ when I first started studying this, but then I was introduced to different schools like Marxism, the Austrian School, New Keynesianism etc. and it made me realize things are not as simple as I supposed they were. Now, however, I feel like I don't have the tools to discern what is good and bad economics. Sure, I know marxist theory or austrian theory are not exempt of criticisms, but neither is orthodox economics. And what's worse is that I feel I'm not capable of criticising them on my own: I always depend on somebody else's analysis of the state of modern economics, his/her interpretation of Marx and Von Mises, etc etc.; so I don't know how much to trust their opinions either.

And I look around me and it seems as if everybody I study with just CHOOSES what to believe in (Austrian/Keynesian/New Classical/etc) instead of deeply analyzing all theories and accepting what seems to be the most rational school of thought for them.

So in summary, what is there to do for me? It's like there's a counterpoint for every argument and I'm not capable of sorting out on my own which is more reasonable. Is there anything I could read to find out what different methodologies each school of thought uses, where exactly do they differ and how scientifically valid are their theories?

I'm not sure if I'm asking for too much, but I'd honestly appreciate any kind of response.


texts: Macro Economics Question: How will this curve shift?

texts:
I am studying for a Macroeconomics Test on the Money Market and was wondering how the Demand Curve for Money would shift when there are changes in Taxation, Income, and Price Levels? (i.e. it would move to the left / right because...)

Here is the graph and slide I am referring to:

If anyone can help explaining this I would really appreciate it!


texts: How do reserves move between the 12 federal reserve banks?

texts:
In single central banks systems (e.g. Bank of England) then the final ledger for electronic money transfer is the adjustment of reserve account balances.

In the Federal Reserve System, there are 12 banks providing reserve accounts responsible for the banking in their region.  How do these 12 ledgers operate such that money can transfer from one region to another?  Is there an overall ledger?

Edit to clarify in response to answer:

An electronic transfer from bank A to bank B in Sterling results in an RTGS transfer between the banks' reserve accounts.  The Bank of England debits one reserve account and credits the other - so that the total reserve balance remains constant.

In the federal reserve system, what happens when money transfers from bank A in region 1 to bank B in region 2?  Does the federal reserve bank in region 1 simply reduce the reserve balance of bank A without an offsetting transaction on its balance sheet anywhere?  Is there an overall ledger that manages the "total reserve", or is it simply a technical constraint of RTGS that the same amount of money is destroyed at one bank as is created at the other?


texts: How does real GDP take into account technological advancement?

texts: I'm asking this question, since it was not explained in my textbook and since I couldn't find the answer in Internet. For example, 1 TB HDD costs 50 dollars now, and 100 GB HDD costed 50 dollars in year X. They are the same products but have different performances. Is the difference of performance neglected for real GDP?


texts: How to see that upper-semicontinuity and supermodularity are equivalent in a supermodular game context?

texts:
One requirement for a supermodular game $(I, \mathbf S, \mathbf u)$ is usually presented in two ways (e.g. in this note):

  For $i \in I$, $u_i$ is supermodular in $S_i$, when $s_{-i}$ is fixed, i.e. for $s_i, s_i' \in S_i$
  $$u_i(s_i \vee s_i', s_{-i})+u_i(s_i \wedge s_i', s_{-i}) \geq u_i(s_i , s_{-i})+u_i(s_i', s_{-i})$$

Or

  For $i \in I$, $u_i$ is upper-semicontinuous, i.e. for $\alpha \in \mathbb R$
  $$\{s_i \in S_i \mid u_i(s_i, s_{-i}) < \alpha\} \text{ is open.}$$

But they're obviously different. The former endows $S_i$ with an order structure, while the latter requires the equipment of a topology. How to understand this difference?


texts:
I would like to understand the meaning of the following phrase:

  Capital flight from Russia in 2014 was 151 billion dollars.

First, I would like to know how such a calculation can be done. Secondly, I would like to know what the underlying mechanism of capital flight from Russia is. For example, does this mean approximatively the following: Russian companies sell Russian gas and oil and then instead of investing this money domestically, they invest it outside?


texts: What does it mean for a country to have access to the markets. E.g: There is an ongoing discussion when Greece will follow a prosperity path in order to enter again the "markets".


texts: The influence of restricted type space on incentive compatible mechanism design?

texts:
When we are to design an IC mechanism for an auction, we usually assume that each agent $i$'s type $\theta_i$ is draw from its type space $\Theta_i$, which contains all the possible types of $i$. For instance in a single item auction, we may assume that $\theta_i \in \mathcal{R}^+$, i.e., $\Theta_i = \mathcal{R}^+$.
In some scenario, prior information about the type space can be acquired by the auctioneer by some means. For example, the auctioneer may confirm that $\theta_i \le M$ before designing any mechanism. That is, the maximum money each agent can pay is no more than $M$. The auctioneer may obtain the information from some statistic query in data market, if we have to explain how she gets it. Then we can validly assume that $\Theta_i$ is $[0, M]$ instead of $\mathcal{R}^+$. Suppose some agent can only benifit himself by misreporting some $\theta_i^{\prime} > M$. Then we have no worry about truthfulness because now $\Theta_i = [0, M]$. Note that agents would not report higher than $M$ because they are informed of the auctioneer's access to the statistics(privacy issue is not considered here).
The above example may not be well constructed, however I'm considering similar setting where  some constraints on agents' type space may make truthful mechanisms easier to get, or even make nontruthful mechanism truthful. I failed to find out any literature on this topic. I appreciate if someone can provide guidance on where to look for such research and whether this is valid as a research point.


texts: Are there papers in evolutionary game theory that are influential in economics?

texts:
The concept of evolutionary game theory has been around for about forty years. The mathematical details are worked out quite well. Yet this discipline is usually a side note in game theory classes and is seldom applied in economics research. Have there been any papers in this field that are considered influential in economics?

To clarify:  There are a lot of papers about the connection of game theory and evolutionary game theory, but only a few that seek to apply evolutionary game theory to explain some economic phenomenon.

I know of this paper by Vega-Redondo and this paper by Schaffer.


texts:
In its Wikipedia article, absolute risk aversion is defined as
$ARA = -\frac{u''(c)}{u'(c)}$. However, I have alternatively seen absolute risk aversion
defined as half the decrease in consumption that an investor is willing to accept to avoid a gamble $\varepsilon$, where $E[\varepsilon] = 0$, $E[\varepsilon^2] = 1$, and $\varepsilon$
is independent of consumption:
$$
U(C - ARA/2) \equiv E[U(C + \varepsilon) \mid C].
$$
Using the latter definition, how can I show that $ARA = -U''(C) / U'(C)$?


texts: What does Varoufakis mean by 'banks can make up money' in 'Talking to my daughter about the economy'?

texts:
Varoufakis' book contains some arguments and explanations. I don't have the book in English with me, so this is a 'free translation' of a couple of points (bold is mine):

  "Contrary to the entrepeneur, the banker does not organize production. (...) We're wrong to think that he is an intermediary between those with excess money and those who wish to lend that money (...). Before, it was like that. Centuries ago. Now, only in very rare occasions does the banker have that role. (...) In developed market societies, the banker does not obtain existing value (money) from some to then give it to others. He obtains it from the future, so that it's possible to use it in the present. (...)"

['Talking to my daughter about the economy', Chapter 4, section 'The "hand" of the banker']

He later, on the same chapter, goes on to say:

  "Every society has its legends. Market society is no exception. The
  fundamental legends of our time are these four:

  (...)

  Bankers lend money from savings accounts deposits.

  (...)"

Finally, later on (Chapter 5), when listing reasons for why people can't get loans after a crisis, he lists some reasons:

  "First, because banks won't lend them money, since they are themselves
  based on money that they don't own, that is, the debts of private
  parties and the State to them, which will never be payed."

What does he mean by 'banks lend money from accounts' being a legend?

I am admitedly very naive about economy in general (hence what may seem a very ignorant question) but I was always under the assumption that banks make money by charging higher interest from the money they lend then they pay people for their savings accounts. What is this 'borrowing from the future' mechanism that he describes?

Finally, doesn't the last bit contradict that? If banks can 'make up' money 'from the future', why do they depend on the money from the debts of people, companies and the State?


texts:
Say you have a cost of living index based on the dollar for each state.
Such as this one:
https://www.forbes.com/sites/chuckdevore/2019/08/06/when-is-a-dollar-not-a-dollar-states-and-the-cost-of-living/

Take Idaho's 92.3

Is this cost of living index an average or a mean based on each state?


texts:
i have to do a business plan as an assignment in my computer science engineering school. I'm looking for help .. can anyone provides me with a complete template ? or an example to follow

thanks,


texts:
Particularly in this context I have come across topics like:
1.Margins held against letters of credit/guarantees.
2..Balances in overdue fixed deposits.
3.Cash certificates and cumulative/recurring deposits.
4.Outstanding Telegraphic Transfers(TTs).
5.Mail Transfers(MTs)
6.Demand Drafts(DDs)
7.Unclaimed deposits
8.Credit Balances in Cash Credit account.
9.Deposits held as security for advances which are payable on demand.
Please explain this in great detail in a pointwise fashion. I am finding it extremely difficult to cope up with these terms. They seem totally new to me so an explanation would be of great help.


texts: How does a bank convert one currency to another?

texts:
Say for example I sell ZAR and buy USD. What happens behind the scenes so that the local ZAR bank is able to deposit USD into my account?

Does the bank require some sort of USD cash reserve?
How do the banks interact/negotiate with each other?
What if the bank selling ZAR cannot find a bank/trader selling USD who wants ZAR?
If the bank does find a source of USD, is any physical money like notes/bills/gold ever moved from one bank to another to settle the account?
How are these transactions regulated or monitored to
avoid fraud?


texts: Is economics a science based more on statistics (observations) rather than rigorous reasoning?

texts:
The world is now more complicated than ever. We are all building upon the shoulders of our forerunners. We cannot understand where everything came from and how everything has evolved, and hence we don't understand how everything interacts. But the building blocks of the world today interact with each other intensively and sometimes unnoticeably. And clearly, it is hard to follow every lead to calculate every interaction's influence. I mention this because in macroeconomics many effects can cause secondary effects and these secondary effects may also cause tertiary effects, so it seems to me like an unending loop.

Thus it seems to me that in macroeconomics we use statistics to find associations and then try to explain certain associations using intuitive notions (maybe a dominant underlying reason) given the results. It seems to me that results in macroeconomics cannot be rigorously argued like the ones in mathematics or even physics. Rather these results are merely approximations learned from the past which are not confirmed each time like the laws in physics, let alone mathematical theorems.

So is what I am saying correct or is it simply that I do not understand macroeconomics enough?


texts: How Many Securities do CRAs Rate Every Year?

texts:
I am writing a paper using this database and want some idea of if the securities in this dataset are a comprehensive list of all the ratings that credit ratings agencies (CRAs) have done, or just a subset of them. Is there some place where the number of securities rated by a CRA in a given year is recorded? Or is there some holistic measure of the number of securities rated by each CRA in a given year?
My guess is that data after 2010 should be representative of the market as CRAs are required to disclose all ratings to their website.


texts: Stag Hare inefficient Nash Equilibrium and level-K thinking

texts:
Two players $i,j$; both have two strategies $\{h,s\}$.
The payoffs vector of $i,j$:
$u(h,h)=(5,5)$ (if both players choose $\{h\}$ then $i$ receives 5 and $j$ receives 5)
$u(h,s)=(10,0)$
$u(s,h)=(0,10)$
$u(s,s)=(15,15)$
The Nash equilibria include $(s,s)$ and $(h,h)$. Experimental evidence suggests that with communication, most people will realize $(s,s)$.
However, when information is incomplete, it could be rational for one player to play $h$ if one of the following conditions hold:

The player believes that hare is attractive enough for the other (this is discussed in a textbook); or, more generally if the player is a level-k thinker (k>0)
If the player is a max-min decision maker.
If the player is picking a Nash Equilibrium such that that his profit cannot be sabotaged by the other.

I wonder if the level-k results and/or the third interpretation ("non-sabotagable" NE) is reasonable or covered by literature.


texts: Example of a rational and continuous preference relation that does not admit a utility representation

texts:
It is well-known that a rational, continuous and monotone preference relation $\succeq$ defined on $\mathbb{R}^L$ admits a utility representation.

I would like to understand why monotonicity is required. In other words, what is an example of a rational and continuous but non-monotone preference relation that does not have a utility representation?


texts: Why use geometric mean for GDP when calculating the credit-to-gdp ratio?

texts:
I have a question regarding the difference between stock and flow variables.

I know that a stock variable is measured at a specific point in time $t$ and the flow of this variable is measured over time, for example from $t-1$ to $t$.

When economists compute the ratio between a stock and a flow variable in some cases they use the geometric mean for the flow variable and the unchanged stock variable. Let's take an example:
A very popular ratio nowadays is "credit-to-gdp". Nearly all studies compute the credit-to-gdp ratio for year $t$ by using the stock variable of credit at $t$ and the geometric mean of gdp from $t-1$ and $t$ (for example Mendoza & Terrones, 2008 or Dell'Ariccia et al., 2012). But why are they doing this? I know the difference between the two concepts but the question for me still remains "so what?".

Consider a counter example: income per capita. Income is obviously a flow variable while the number of people in an economy is a stock variable. But as far as I know nobody is even considering using the geometric mean or something like this.

Is it just a habit, a practical issue (if we have the data we do it if not we don't) or is there really a logical (mathematical) reason behind this approach? So far I was not able to find a convincing answer and I get the feeling that this is just a method to smooth the data a little bit.


texts: Controlling for a variable in OLS - Stratification and Reaggregation. Simple Example

texts:
In his engrossing book "Naked Statistics" Charles Wheelan begins to explain how controlling for variables works by stratifying the sample. However, he stops short of explaining the reaggregation, leaving one intrigued by the stratification analogy but confused as to whether- and if so, how- it can be applied.

To be more specific, he is looking to isolate the effect of education on weight, by controlling for gender, height, and income. He imagines an experiment in which a number of people (constituting the sample) all gather in one place. Then the stratification begins:

Men and women are separated
The men and women are separately subdivided by height. At this point, as he says it "There will be a room of 6-foot tall men. Next door, there will be a room of 6-foot 1-inch men"
Finally, each of these rooms (identified by combinations of gender and height) can be further subdivided by income.
As he puts it: "Eventually we will have lots of rooms, each of which contains individuals who are identical in all respects except for education and weight, which are the two variables we care about. There would be a room of forty-five-year old 5-foot 5-inch men who earn 30,000 to 40,000 a year".

While we can regress weight on education in each of these rooms, how useful is that given that we are looking to end up with a single coefficient that encapsulates the relationship between weight and education observed in each of these rooms?

What magic analysis would need to be performed using data of the people in each of these rooms, which then could be aggregated to obtain the regression coefficient which can be interpreted as the effect of the independent variable of interest on the dependent variable, after we control for the two binary variables? How exactly would the aggregation work?

While I found this question/discussion https://stats.stackexchange.com/questions/17336/how-exactly-does-one-control-for-other-variables interesting, controlling for a variable by its inclusion in a regression is insightful but not a very intuitive answer. Stratification and Reaggregation, if it is possible, shows quite a bit of promise of intuitive understanding.

Illustrative Example with Made up Numbers:
On the left are the results of the simple regression of weight on education (after stratifying by income and gender) in each of the 4 rooms (each room with 15 people/observations), whereas on the right are the results of the multiple regression of weight on education, income, and gender (60 people/observations combined).

Is it possible to aggregate the results of the regressions obtained in each of the 4 rooms (stratified by income and gender) to obtain the coefficient on education obtained in the multiple regression (-3.28), in which we control for income and gender?


texts: Price Producers Receive as a Result of Indirect Taxes

texts:
In my economics class, we were introduced to the idea that if the government imposes an indirect tax on a good, the price consumers have to pay increases, but along with this increase in price for consumers, the price producers receive decreases. I understand the former perfectly, however, don't understand why the price producers receive decreases.

$P^*$ is the original price prior to the imposition of taxes, and $Q^*$ is the quantity demanded prior to the imposition of taxes. $P_c$ is the price paid by consumers after the government's decision, and $P_p$ is the price received by firms, once again, after the imposition of taxes.

My question is, why isn't $P^*$ equal to $P_p$?


texts: Aren't all cost functions step functions?

texts:
Long Question:

Overview:

While I understand that over certain intervals (i.e. less than the width of the step), they may appear not to be because the step is outside of consideration, and over other intervals (much, much larger) the step seems continuous as opposed to discrete, but at the end of the day aren't these merely artifacts of the analysis, as opposed to properties of the underlying function?

Admittedly, I was never much good with the calculus of discrete functions, but I remember there being some substantial differences between their derivatives (e.g. the need to invoke the finite difference method as opposed to a limit).

Further, given the potential steepness of the step, and its unknown location, isn't predicting difficult?

A Picture:

For example, the graph below shows a cost function for $n$ units with and without a step.

The red line is:

$$C(n)=5n$$

and the blue line is
$$C(n) = n+(n-\mod (n,5))$$

Analyzed over $(0,5)$ these would coincide, and an analyst might not have any expectation that increasing by a small factor would dramatically increase cost, and while the (simple) derivative at any point on the line is the same for either line (inside the step interval), this is very misleading.

Further, I chose $5$ at random, a more generalized idea might be something along the lines of:

$$C(n) = n+\frac{S(n-\mod(n,w))}{w}$$

where $S$ is the step cost, and $w$ is the width.

Summary:

Given these concepts, why are step cost functions generally treated as less preferential in discussing models? Or is that just my experience, and not indicative of the way the field treats cost functions as a whole?

I ask this, because whenever I see a discussion of a cost function, it seems to be continuous, and whenever I see mention of a step function it seems to be an afterthought.


texts: Is clustered standard errors the best way for all regressions that uses clustered data?

texts: Using clustered standard errors assumes that the regression coefficients are the same for all the clusters in the data, right? What if they are not the same. For example, I have used F-test to compare regression coefficients across the 3 clusters in the plot below. The null is rejected that the regression coefficients are the same across the three regression models. So my intuition is that I cannot do something like "regress A B, cluster(C)", for example in STATA, right?. Thus, I should do a regression for each cluster instead? I will read on clustered standard errors later, so a hint will help.


texts: General Results on First or Second Mover Advantage?

texts:
I am just wondering whether the following question has already been answered in game theory: Fix an arbitrary (say, finite) two-player strategic form game. Under what condition, does one player (say, Player 1) want to be the first-mover than the second mover?

For example, we know that moving first is better in Cournot competition and moving second is better in Rock-paper-scissors. Is there a general condition on the payoffs of two-player games under which we can tell whether Player 1 should go first or second, if he could choose?


texts: What are called goods, whose maintenance expenses are higher than initial price tag. There is a specific term for that, but I can't find it.


texts: Is there a specific definition of short run and long run?

texts: Like normally how long can be said as long run? And does specific time length of these words matters?


texts: Good source for marginal propensity to consume by country?

texts:
Is there a good data source that aggregates the MPCs of various countries?

Thanks.


texts: Why does marginal cost slope upwards after the minimum point?

texts:
My textbook writes this on marginal cost:

"The law of diminishing returns refers to the idea that as more of a factor (input) is used, with at least one fixed factor, there is some point at which the increase in output will be at a decreasing rate. Each variable unit produces less when diminishing returns are occurring, so the production of extra units of output will require more of the variable inputs, so MC must increase."

I've got some questions about this

What is meant by variable unit?
Does marginal cost increase because there is more variable input, or does each worker become less productive when there are too many workers, so there needs to be more variable inputs (so increasing the variable input doesn't decrease productivity, it increases because more input is needed when the workers are less productive).


texts: Understanding the linear expenditure system

texts:
I've been reading up on the uses of the linear expenditure system via a the papers which apply them.

One paper which gives a good introduction to the topic in a paper called:
Modeling household behavior in a CGE model:
linear expenditure system or indirect addilog? by Paul de Boer. (pages 5-6) It goes through the basic theory behind the linear expenditure system fairly well.

However in terms of working out the mathematics myself i'm having some difficulty, below is an abridged version of what is found in the paper.

  To derive the linear expenditure system we have:
  $$\max \ \ \ \ \ \ U(x_1,...,x_n)=\sum_{i=1}^n\gamma_i ln(x_i-a_i)$$
  $$s.t.\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ m=\sum_{i=1}^n p_ix_i$$

  After computing this we should get our linear expenditure system which is defined as:

  $$p_ix_i=p_ia_i+ \gamma_i(m-\sum_{j}p_{j}a_j)$$

  where
  $(m-\sum_{j}p_{j}a_j)$ is  supernumerary or discretionary expenditure.

This is not what I got.

when solving this I end up with this (like how it was previously derived on Linear Expenditure System of Demands, Derivation Help):

$$\sum_{i=1}^nx_i=(a_1,...,a_n)+\left(\frac{\gamma_1}{\lambda p_1},...,\frac{\gamma_1}{\lambda p_1}\right)$$

How do i get the result like that in this paper?


texts:
I understand that you find the interior solutions for the pareto efficient set with Lagrange (Maximizing the utility with the endowment constraints and holding the other player's utility fixed)
How do I proceed with finding corner solutions with this method?
Or in general how do I find corner solutions mathematically (without looking at the graph)?


texts: How exactly did Venezuela's economy fail?

texts:
Venezuela has unfortunately become the example of a first-world, wealthy democracy failing, and I'd like to make sure I understand why.

My understanding comes down to a few major steps, namely:

Venezuela has incredible stores of oil
In the late 90's and early 2000's, Hugo Chavez's government invested heavily in building up the oil sector, and redistributed most of the profits to the people in the form of social programs, and state-owned corporations filling most roles in the economy
The oil industry caused three major strains on private industry in other sectors of Venezuela's economy, causing private industry to begin to fail:

Spike in Venezuela's currency caused by oil exports ("Dutch disease")
Competition from state-owned competitors
Borrowing by the government to reinvest in the oil industry at high leverage

The drop of oil prices in 2007 to 2008 caused a gradual collapse of the one-product economy
Excess printing of money to try to combat the effects of the oil price drop caused hyperinflation and a loss in confidence in the currency
Hugo Chavez and Nicholás Maduro consolidated power in an attempt to more directly target economic issues and administer social programs (assuming good intentions, which may not be a good assumption)
Another drop in oil prices in 2014 caused additional damage to the economy
Protests against the drop in quality of life, and lack of popular support for Nicholás Maduro caused functional collapse of the government, as a government that people don't believe in is no government at all

Where are the holes in the above description, and where do I need to understand better?


texts: Why do different product-markets record different rates of return if the assumption of competitive markets hold?

texts:
I'm a new economics student, and have become fascinated by the field of Industrial Organization. To that end, I'm reading through the Carlton and Perloff Modern Industrial Organization text book. In doing so, I have come upon a question I was hoping to ask the group here. If all product markets are perfectly competitive (to a reasonable approximation), shouldn't the returns to invested capital (a way of measuring 'economic profit') in every product market, whether the market be for cement or GPS integrated circuits, be equivalent after adjusting for risk? Or put in a equivalent way, do the differences that are seen (in reality) between the rates of return in different businesses/industries reflect purely differences in risk borne by shareholders/capital-owners?
The reason I ask is because it seems (to my untrained eye) as if the assumption that all markets have equal risk-adjusted rates of return is just manifestly not true (see  the graph below).  Different product-markets and indeed different firms within a particular market empirically show wide variance in profits and returns (can provide some sources if needed). If the difference is not driven merely by risk, what explains this difference and what are the welfare implications of that explanation?
This leads me to the true question I'm interested in answering. If high returns in certain markets are not explainable by risk, then are they entirely ascribable to market power (with its attendant losses to overall welfare and efficiency)? Or could there be other factors at play? If there are other factors at play, what are they and can you point or direct me to models/theories/papers which describe them? One factor that some people throw around colloquially is "efficiency"; a firm might be more efficient than its competitors. What models explicitly model the process of a more efficient firm and its attend effects on returns, profits and welfare?
Of course, I might be missing something huge. I am new to this and am asking what I realize to be very naive questions. Happy to be educated :)
Edit: I realized that there might have been some confusion. I was referring to differences in rates of return between and within different product markets, not different countries. So the phenomenon I'm interested in understanding is the following graph, which is taken from here


texts: Does trade lead to economic growth in the most basic models of trade?

texts:
In the standard models of trade, such as Ricardo or Hecksher-Ohlin, I know that openness to trade will lead to increased consumption as (roughly) the consumption possibility frontier expands beyond the PPF. However, does this mean that the countries will grow?

Technically, consumption expands because the relative price of the goods in which you won't specialize will decrease. Therefore, I don't see how I could infer from this increased consumption that there has been economic growth.

I am asking because I have seen many lectures jump from the classic diagrams of international trade to the idea that the baseline theory suggests that trade is benefitial to economic growth.


texts:
In the wake of the Covid-19 pandemic, the ECB requested EU banks not to pay dividends as well as refraining from buying back their own shares until the end of 2020. And that even if they had already set cash aside for future loan losses.
Banks however are lobbying for a resumption to shareholder payouts. Presumably because their stocks have been hit hard by the cancellation  of dividends (among other things).
Buybacks (allowed since 1982) can be  a hot political topic, scrutiny is imposed around them. They can affect a companies EPS and therefore executive rewards.
Why is the ECB asking EU banks to hold off on buybacks?  And why is it so important for banks to resume shareholder payouts ? What, in effect, is impact the payout (E.g. impact different if payout is 10% of banks profit VS 50% ) ?


texts: Does accumulation of fiat currency cause instability?

texts:
If the value of fiat currency is a function of the supply of money and it's velocity, is the accumulation of that currency detrimental to its stability?

I may be wrong in my understanding of the value of money but it goes something like this. A unit of a fiat currency over a period is worth the total value of transaction in the economy over the period, divided by the product of the total money in circulation over that period and the velocity of that money.

Assuming that is a more or less accurate description of the value of currency does existing sitting currency that is not being invested or spent in that period have any negative effects on it's overall value.


texts:
Is there a strict division between the Keynesianism and Monetarism on the view of inflation. In other words, does the push and pull inflation only belong within a Keynesian framework and does inflation defined in term of balance between monetary base and supply of goods and services only belong within the Monetarism.

Alot of presentations of inflation are self contradictory to me and I thought this might be why. I.e that there is indeed two definitions of inflation not having anything to do with each other originally.

In particular I find it hard to distinguish between "An increase in the money supply" and "An increase in the aggregate demand for goods and services"

On this page ; https://www.investopedia.com/articles/05/012005.asp

The demand is governed by the existing amount of money in my opinion, i.e demand pull become secondary or a consequence of increase in money supply. Hence the "definition" of inflation as "increase in prices" seams to include two things of which we cant decide what is what.

Increase in money supply $\rightarrow$ demand pull  $\rightarrow$ prices up.

Increase in money supply $\rightarrow$ prices up.

demand pull  $\rightarrow$ prices up. (without increase in money)

The last implication donst make sense.


texts:
In a two-period lived economy, one consumer wishes to buy a TV set in period 1. The consumer
  lives for two periods, and is willing to pay a maximum price of $100 per period of TV usage. In
  period 2, two consumers (who live in period 2 only) are born. Each of the newly born consumers is
  willing to pay a maximum of fifty dollars for using a TV in period 2. Suppose that in this market
  there is only one firm producing TV sets, that TV sets are durable, and that production is costless.

  (a) Calculate the prices the monopoly charges for TV sets in periods 1 and 2.

  (b) Answer the previous question assuming that in the first period, a consumer who lives two
  periods is willing to pay no more than twenty dollars per period for TV usage.

My attempt

For this I consider cases whether person 1 buys tv in period one or not.
If he not buys then monopolist sell tv to other person for 50 yielding profit of 100 but also he can charge 100 for person 1 so total profit is 200. So my question is whether he charge 50 or 100 from person 1 as there is not given about price discrimination.
Also if he buys tv in period 1 then 100 for second period person is same but then how to calculate it for period 1 price is it 150 or 100 as person 1 not want to give more than 100 for period.


texts: How to determine the riskparamter PD, EaD, LGD for the IRB-Ansatz | Basel II

texts:
A company borrows $100 million from Bank A. According to Basel II, the bank must have a certain amount of equity for this balance sheet item in order to grant the loan.
The exact amount of equity can be calculated using the IRB approach. The IRB formula depends on the parameters

probability of default (PD)
exposure at default (EaD)
lose given default (LGD)
maturity of the exposure (M)

Banks in Europe can use their intern models to compute this quantities. Does someone know what models banks use to compute this quantities? I am especially interested in the computation of PD.


texts: How can a sovereign debt ratio be high, but debt-servicing ratio be low?

texts:
I'm quoting this May 22 2020 interview with NYU Stern Prof. Nouriel Roubini.

In other words, you’re saying that because of structural weaknesses in the economy, even modest inflation would be crisis-inducing because key economic actors are dependent on near-zero interest rates?
For the last decade, debt-to-GDP ratios in the U.S. and globally have been rising. And debts were rising for corporations and households as well. But we survived this, because, while debt ratios were high, debt-servicing ratios were low, since we had zero percent policy rates and long rates close to zero — or, in Europe and Japan, negative. But the second the Fed started to hike rates, there was panic.

I never studied accounting and don't understand the embolding. Investopedia defines Debt to Asset ratio = Total debt/Total assets. I can't find the definition of sovereign debt-servicing ratio on Google! The one for family on Investopedia appears irrelevant.
Debt-Service Coverage Ratio $= \dfrac{\text{Revenue $-$ Certain Operating Expenses}}{\text{Total Debt Service also known as  Current debt obligations}}$


texts: Why is everyone suggested to specialize their education?

texts:
Why is so common to suggest university students to specialize in order to get a better paid job?

This goes completely against the principle of diversification of investments, in order to decrease risk by spreading it over a portfolio.

Instead, students are driven towards specialization, investing their most valuable asset, time, in a single high risk endeavor. Specialization might be good for society as a whole, but can have disastrous consequences for the individual.


texts:
Why is it important for policymakers (central bankers, the treasury department, the finance ministry etc.) to be able to solve complex dsge/rbc models as quickly and as efficiently as possible?
I am a graduate student studying this stuff in detail for the first time. In general, I don't see the value of solving these heterogeneous agent models. This is mostly because I approach these issues differently than "mainstream" economists.
I am just trying to understand why being able to "solve" models is useful.


texts: I have been studying the area of unsecured consumer credit (consumer loans and credit cards) and credit scoring. My question is: can we have a utility function (either a lender's or borrower's utility) that can take both the borrower's credit score (probability of repayment) and loan limit (amount) as arguments in an explicit manner? What I have managed to get on the web are implicit functions of the form $f(x,y)$ e.g. on equation (1) in the article https://pdfs.semanticscholar.org/3207/55db4a277766043b5a1cb73f3b84df9cb613.pdf


texts: The relation between econometrics and machine learning

texts:
In my understanding the utility of econometrics versus machine learning is generally argued to be the research of causality.
If I'm not wrong, when we put aside experimental economics, the golden standard to prove causality is to use Intrumental Variables. But in practice it has been showed that finding a relevant IV is often not possible, and authors end up taking the best "IV" they can find.
Problem: This variable has a high chance to not in fact be exogenous, but we can not verify it when the IV is dependant of variables like happiness, for example. Since we have no way do verify those dependances, science stops here.
SO I am wrong to say that in most cases econometrics can not scientifically establish causality? In that case why using traditional econometrics instead of modern machine learning techniques?


texts: Technical Analysts and Econometricians: A Question on Methods

texts:
I've been reading the book Technical Analysis Explained by Martin J. Pring as a result of a conversation with one of my friends who said he did technical analysis but didn't apply the types of models employed by econometrician when forecasting (i.e ARIMA, VAR ect).

as I progressed through the book, I noticed though the methods were simple and required little knowledge of statistics but they worked very well. They call these methods as a part of trend analysis.

My Question: why are such methods not employed by more frequently by economists/econometricians?

Note: an example of such methods can be seen in the presentation by Martin Pring: Technical Analysis for Short Term Traders


texts: Substitutability vs complementarity of efforts

texts: Suppose $n$ players are in joint production to produce a common output $v(a_1,a_2,...,a_n)$ with their individual actions $a_i$. Does the convexity or concavity of $v(a_1,...,a_n)$ in the actions say something about the substitutability or complementarity of their actions?


texts: Can we successfully pursue the goals of environmental sustainability and reduction of income inequality at the same time (and, if so, how)?

texts: Environmentalists tell us to reduce our carbon footprint by, among other things, reducing our traveling and consumption of long-hauled goods. But people living in small-market export-oriented countries, as a result, may and are expected to have a hard time coping with such a drastic change in consumers' preferences (keep in mind, it's often developing nations). For example, about a third of Sri Lanka's GDP is just tourism and tea.


texts: Short cuts to solve Cobb Douglas Utility function (minimization)

texts:
Say a Cobb Douglas like:

$$\max_{X,Y\: s.t. X \cdot P_x+ Y \cdot P_y=I} U=X^\alpha Y^\beta$$

When it comes to maximization I would do the following way (for the fastest result):

x: $\alpha/(\alpha + \beta) = r; r*income = r_2$; $r_2$/price good = x$

Is there a similar (or really fast) method to solve for minimization problems?


texts: Can demand side restrictions explain the productivity paradox (Solow paradox)?

texts:
Productivity paradox https://en.wikipedia.org/wiki/Productivity_paradox is the name for the slow productivity growth (i.e. slow GDP growth) of the developed economies despite the robotics, AI, automation and digitization.
Productivity paradox presents uneasy interpretation of the effects of 4th Industrial revolution to the techoptimists.
Productivity paradox can be interpreted as the supply side constraints/bounds and those are very bad per itself, yet - it is in stark contrast with low-inflation (even negative inflation) regime of the current economy, with the possibility of governments to finance stimulus and Covid-19 idleness without raising inflation. Such low inflation regime generally proves that there are no attained supply side constraints, that there is idle capacity.
Such interpretation - about idle capacity - proves that demand side bounds determine the low inflation, low growth and hence - low productivity? So - can we really say that technology has created ample supply side capacities (and hence - potential productivity growth, I mean - total productivity of technology and humans, human productivity growth can be exhausted already and that is why Artificial Intelligence and robotics almost fully determine the future productivity growth) and only demand side restrictions puts bounds on growth and hence - the productivity doesn't show up in macroeconomic figures?
Of course - I should explain the term "demand side restrictions". Some may argue that there are none: if there is capacity for growth, then investors/workforce will use it, they will earn money and they will fully spend it - either for consumer goods or for capital goods (bank deposits is example how money is spent for capital goods) and hence - the growth should happen. And if growth doesn't happen then that is entirely due to the capacity restrictions, e.g., due to the low productivity. But I don't know - whether one can consider the consumer and capital goods as being the same. Maybe inequality can create "demand side restrictions": if money concentrates in the hands of the wealthy, then they are investing them in capital goods and hence in the supply side capacity building. If the money goes to workers and to all other people as the social assistance of Universal Basic Income, then it is being spent and hence the potential productivity is realized and becomes the actual productivity growth that appears in macroeconomic figures?
So - are there any demand side restrictions (e.g. to wealth concentration) in the period "2010-2020+" in the advanced economies and can such demand side restrictions determine that the potential productivity (e.g. due to the technological achievements) is not realized and doesn't show up in the macroeconomic figures as the actual strong productivity growth. Can this be the explanation of the productivity paradox? If now - what is wrong with this reasoning?


texts:
I have problems with deciding whether those statements are true or false.

In a short/long run price of equilibrium on a perfectly compettive market might be either lower or higher then average total cost of one company operating on this market.
In a short run total amount of companies in perfectly competitive branch of industry, changes when their economic gains are equal to zero.

Appreciate your help with some further comments about that.

PS. anticipating your questions i am preparing to an exam, that is why i am looking for an answer to those questions.


texts: Why does China buy so much U.S. Treasury debt?

texts:
What is the reason that China buys so much US debt in form of Treasuries? How does this help the Chinese economy? It seems they are willing to give money to USA so USA economy can function better (more cash more investing in infrastructure).

What is in it for China, holding a bunch of paper yielding next to nothing?


texts: Increase in money supply when price are flexible in the basic new keynesian model

texts: I would like to know what would be the effect on price and quantities of an increase in money supply in the basic new  keyensian model. What happen if price are fully flexible ? What if prices are subject to rigidity (a la Calvo for example) ?


texts:
How to compute the utility function when risk aversion is equal to 1?
If the utility function of consumption is set as,

$\frac{C^{1-\sigma} - 1}{1-\sigma}$.
Is it meaningful as $\sigma$ is equal to 1?
How to prove it if so? Thanks a lot!


texts: Is the risk of a general run on the banks greatly reduced now that most transactions are done electronically?


texts: The relationship between Account Receivable Days and Credit Policy

texts:
I am wondering if credit policy relaxation affects the account receivable days when markets becoming more competitive.
Conventional wisdom suggested that the credit policy relaxation will lead to "bad customers" who has high default risk. Therefore, it is harder for firm to collect the receivables from them, leading to an increase in account receivable days.
Is there an argument, document. or line of thought supporting that the credit extending does not necessarily increase account receivable days?
My thought is that the credit policy is one side, but account receivable day also being affected by the efficiency in the credit management of managers.


texts:
I'm using the capital asset pricing model (CAPM) to estimate the values of some assets.

I'm curious if there are other (simple if possible) models similar to it.
I want to apply as many models on my assets as possible.


texts: Difficulty in an economics' optimization problem using Kuhn-Tucker conditions (interpretation difficulty)

texts:
I am having troubles in solving correctly the following problem:

A company wants to minimize its total costs, on the condition that the income obtained from the sale of the quantities $x_1, x_2$ of the two products it produces exceed a certain minimum threshold. Knowing that the unit costs of manufacturing each good are linear functions of the produced outputs in the form $C_1 = x_1, C_2 = 2x_2$, that everything that is produced is sold and that the sale prices of the products are: $p_1 = 1$ and $p_2 = 3$, respectively. Determine the quantities $x_1, x_2$ that minimize the cost of the process.

Solution:

$x_1 = 6/11$

$x_2 = 9/11$

$\lambda = -12/11$

$TotalCost(x_1,x_2) = 18/11$

I tried to solve it through the common way: using Lagrange function with Kuhn-Tucker conditions. However, I cannot reach the correct solution, despite I tried several times. I think I am not building Lagrange function correctly as a consequence of not understanding properly the economical meaning of what the problem want me to solve.

So I would be really greateful if you can help me to understand how to reach the correct solution to this specific problem, knowing that clarifying how to build Lagrange function and its restrictions is probably what it is needed here to fully understand the problem and its solution.


texts: Does it mean that the value of currency decreases?

texts:
Higher interest rates offer lenders in an economy a higher return relative to other countries. Therefore, higher interest rates attract foreign capital and cause the exchange rate to rise.

Does to rise means the value of currency decreasing?


texts:
National Income is the total value of all services and goods that are produced within a country and the income that comes from abroad for a particular period, normally one year.

Gross Domestic Product is defined as the value of the goods and services generated within a country.

By definitions,
National income= Income from within the country and from abroad.
GDP=Income within the country.

Here my doubt is I have seen in some textbooks why national income is referred as GDP and vice versa in measuring methods of national income?


texts: Why is deflation not considered the opposite of inflation?

texts:
In this article from 2013 on bitcoin, the author casually states the importance of knowing that "deflation is not the opposite of inflation", without expanding or elaborating. I'm sure that there are differing points of view, but can anyone provide support for this statement and its importance?

To me it seems that deflation is a decline in prices, while inflation is an increase in prices - making them opposites. However, I'm guessing that the author is referring the effects of inflation and deflation not being opposite, or perhaps there are some differences when considering pure currency (the article is about bitcoin) vs. the effect of a currency in the market.


texts:
I am looking for a method to prove that the following function is quasi-concave in $\alpha$  (or find conditions under which it is true):

$ \pi=F(-k)(f(0)^2-f(h(1-\alpha))^2)+ \frac{1}{2}-\frac{1}{2}f(0)^2-\frac{1}{2}f(-k^2)(2F(h(1-\alpha))-1)^2 $,

where:

$F$ - is a CDF function of Normal Distribution, $N[0,\sigma^2]$;

$f$ - is a PDF function of Normal Distribution, $N[0,\sigma^2]$;

$k$ - exogenous patameter, k $\in [0,+∞)$;

$h$ - exogenous patameter, h $\in [0,+∞)$.

Any help would be appreciated.

UPD

I have forgotten to mention that I am trying to prove quasi-concavity on the interval $\alpha \in [0,1]$


texts: What is some intermediate or advanced macroeconomics textbook use general approach and focus on general topics?

texts:
What is some intermediate or advanced macroeconomics textbook that use general approach, cover major formulas, math intense and focus on general topics similar to Romer's and Branson's Macroeconomics book?

Instead of being use more specific approach like Macroeconomic Theory: A Dynamic General Equilibrium Approach?

Foundations of Modern Macroeconomics by Ben and Lectures on Macroeconomics by Blanchard are both good, what else are out there and how would you compare those two of four i mentioned with your choices in your answer? I know that a graduate economics textbook that teach general topics tend to be easier.


texts: Is there a dutch book argument for the "independence of irrelevant alternatives" axiom?

texts:
There is a dutch book argument to show that nontransitive preferences are in a sense "unreasonable", which justifies why we pose the axiom of transitivity in the definition of "rational preferences", when it comes to no-uncertainty utility.

When it comes to utility functions over lotteries, Von Neumann and Morgenstern additionally pose the Independence axiom w.r.t. lotteries.

Are there Dutch-book arguments to justify the independence axiom?


texts: I am not able to find the size of the capital account within the balance of payments for the US. Only "net" numbers, does anyone know the size of both sides of this account? They both seam to be approx 1 trillion on the current account.


texts: Why would expanding fiat paper issue lead to decreased exports?

texts:
I'm reading "A History of Money and Banking in the United States" by Murray Rothbard, and I'm having trouble understanding this one piece of history. Basically, the Massachusetts government issues irredeemable paper money in 1690 to help pay some debts to soldiers. In the next 40 years it further expanded its paper issue, causing rapid depreciation with respect to specie. To counteract this, the government passed legislation to make the paper legal tender at par with specie, and even granted a premium of 5 percent on all payments of debts from the notes. By Gresham's law, this led to loss of specie in circulation, and "In addition, the expanding paper issues drove up prices and hampered exports from the colony".

I have a couple questions to clarify.

what exactly is the meaning of "granting a premium of 5 percent on all payment of debts"? My intuition tells me that this is simply that if you choose to pay your debt in paper, as opposed to specie, you will have to pay 5% less.
How would expanding paper issues, which drive up domestic prices, lead to hampering exports in this context? The way I'm thinking of it, increased money supply would increase prices via inflation, but would also devalue the currency with respect to specie and foreign currencies. So if 1 unit of specie/ foreign currency is worth more of the paper notes, wouldn't it INCREASE exports, as things would be cheaper?


texts: Would a car that was produced last year but bought this year be accounted for in the GDP?

texts:
The equation for the GDP is: $$C+I+G+(X-M)$$
If consumers are buying new cars produced last year...would those still be included in the GDP?


texts:
Marginal cost is the cost associated with producing one more unit of output.         Mathematically speaking, marginal cost is equal to the change in total cost divided by the change in quantity.

$\ MC(q_{1},q_{2})=\frac{TC(q_{2})-TC(q_{1})}{q_{2}-q_{1}}$

Marginal cost can either be thought of as the cost of producing the last unit of output or the cost of producing the next unit of output. Because of this, it's sometimes helpful to think of marginal cost as the cost associated with going from one quantity of output to another, as shown by q1 and q2 in the equation below.

To get a true reading on marginal cost, q2 should be just one unit larger than q1.

That said, as we consider smaller and smaller changes in quantity, marginal cost converges to the derivative of total cost with respect to quantity.

$\ MC(q_{1},q_{2})=\frac{dTC}{dQ}$

What if we need to calculate marginal cost as we go from one output point to a much bigger one?

For example, if the TC of producing 3 units of output is \$15 and the TC of producing 9 units of output is \$21, the marginal cost, simply put, is \$1.

Once we are considering a change in TC values due to a variation of quantity produced higher than 1 unity, are we applying the concept of average rate of change to measure the MC value?


texts: Free market defense against anti-competitive behavior?

texts:
One argument against a completely free market economy without "government" oversight is the tendency towards anti-competitive behavior. The argument is that government laws are needed to prevent anti-competitive behavior which could be used to create and solidify monopolies.

A typical example of this is the behavior of liquor distributors in the United States. In the United States it is (or was?) a common practice of liquor distributors to coerce retailers into selling only the brands of liquor that the distributor offered. Distributors carrying the major brands would inspect liquor stores and if they found the store selling any small company's liquor, they would threaten them: "Either stop selling this company's liquor, or else our deal is over and we won't supply you anymore." This is deadly threat, since liquor stores need big brands to stay in business. Because of this, it has been traditionally been difficult for small liquor distillers to survive without a deal with a major distributor.

The same kind of argument was floated at the turn of the century (1900). Oil companies would threaten pipelines: don't carry this small oil company's oil or we will drop you. This type threat caused small oil companies to get frozen out of pipeline distribution networks until legislation basically forced pipelines to carry all oil equally and made it illegal to prefer one company's oil to another.

Is it possible in a totally free market economy to combat anti-competitive behavior or is government regulation the only way to stop it?


texts: Would healthcare costs increase (in the long term) if all smokers quit?

texts:
According to research by Jan J. Barendregt, M.A., Luc Bonneux, M.D., and Paul J. van der Maas, Ph.D.:

  RESULTS

  Health care costs for smokers at a given age are as much as 40 percent higher than those for nonsmokers, but in a population in which no one smoked the costs would be 7 percent higher among men and 4 percent higher among women than the costs in the current mixed population of smokers and nonsmokers. If all smokers quit, health care costs would be lower at first, but after 15 years they would become higher than at present. In the long term, complete smoking cessation would produce a net increase in health care costs, but it could still be seen as economically favorable under reasonable assumptions of discount rate and evaluation period.

When it comes to short-term effects, Cancer.org claims that:

  From 2000 to 2012, tobacco-related health costs and productivity loss in the United States totaled $289 Billion
  The average price of a pack of cigarettes in the United States is \$6.36. But each pack of cigarettes creates $35 dollars of health-related costs for the smoker.

However no information is given on long-term effects.

The question is therefore: if everyone stopped smoking, would healthcare systems around the world see a net increase or decrease in expenses in the long term?


texts: Which area of Economics involves heavy mathematics and also appears to be directly helping the people?

texts:
The thing is that I am writing a scholarship essay and one of the questions asks me to list my career goals and suggests as to how would the college where I am applying for the scholarship to would help me achieve these career goals. So my career goal is that I want to pursue research in Economics and publish papers. But I want to connect with the fact that I am very much interested in Mathematics and also participate in a lot of community service projects. I, therefore, want to write about an area of Economics something like Econometrics or Quantitative Finance which bears a strong relation to above-mentioned themes because then I will be able to elaborate on how the college offers a strong program in these areas and that this would, in turn, would help me succeed in my career.

PS. (1) I don't want to hint that I intend to make lots of money. So may be Quant is out.

PS. (2) A list of courses can be viewed on this link (http://www.lse.ac.uk/resources/calendar/programmeRegulations/undergraduate/BScEconomics.htm).


texts:
How would I calculate the total UK household income? I want to be able to estimate what a flat 10% income tax would generate (with no personal allowance or other tax breaks).

Not that I agree with this idea!


texts: Is it unreasonable to expect a country with a large public deficit and the world's reserve currency to not run trade deficits with other countries?

texts: I have heard that country trade deficits are primarily driven by excessive consumer spending and large public deficits, and that having the world's reserve currency means that you will have to run large trade deficits. How much of these claims actually true and supported by evidence?


texts: Prove that a continuous $\succsim$ is quasilinear

texts:
This question is closely related to Mas-colell, Whinston, Green: Microeconomic Theory, Question 3.C.5b

  Let $\succsim$ be a strictly monotone, continuous, and rational
  preference relation on $(-\infty, \infty)\times \mathbb{R}^{L-1}_{+}$.
  Furthermore, suppose $\succsim$ is quasilinear in good $L$. Let us
  write $x \in X$ as $x=(y,x_{L})$ where $y \in  \mathbb{R}^{L-1}_{+}$.

  It can be shown that if $v(y,x_{L})$ is a utility function that represents $\succsim$, then there
  is a unique $x_{L}(y) \in \mathbb{R}$ such that  $v(y,x_{L}(y))=0$.

  Let $\phi(y)=-x_{L}(y)$ and show the utility function of the form
  $u(x) = x_{L} + \phi(y)$ represents $\succsim$.

Proof:

To show that $u(x)$ represents $\succsim$ I need to show that for every $x,x' \in X$, $x'\succsim x \iff u(x') \geq u(x)$.

However, I have found an example that may not be satisfied: suppose that $x$ and $x'$ are such that $x=(y,x_{L})$ and $x'=(y',x'_{L})$, with $x\precsim x'$, $(y,z_{L}) \precsim (y',z_{L})$  $\forall z_{L}$ and $(z,x'_{L}) \precsim (z,x_{L})$  $\forall z$.

These preferences imply:

$(y,x_{L}') \precsim (y,x_{L}) \precsim (y',x_{L}') \precsim (y',x_{L})$

To show that $u(x)$ is consistent with this I need to show that this preference implies:

$u(y, x_{L}') \leq u(y,x_{L}) \leq u(y',x_{L}') \leq u(y',x_{L})$

and not

$u(y, x_{L}') \leq u(y',x_{L}') <  u(y,x_{L}) \leq u(y',x_{L})$

However I can find no reason why 2. presents any sort of contradiction! I have been thinking about this for two days, and am sure by now I am making some logical errors. Either the example I have come up with is not valid, or it must imply some sort of contradiction!  Any comments will help. And please hints only, no full solutions.


texts: How can I solve for total money spent if I use a non-constant MPC?

texts:
Background

Today in my macroeconomics class my teacher taught us three concepts.

The first is very simple: consumption $c$ is a linear function of national income $y$. Mathematically, $$c = My + b$$

We will call $M$ the marginal propensity to consume, and refer to it accordingly as MPC. MPC can also be thought of as the fraction of income that is spent rather than saved. So MPC is going to be some number less or equal to one but greater than or equal to zero ($0 \leq M \leq 1$).

The second concept we learned is also quite simple. As income $y$ increases, MPC decreases.

The third concept is a little bit more complicated. Let Person 1 has $5$ dollars. Let MPC be universally constant and equal to $\frac{3}{4}$. Now, since MPC $= \frac{3}{4}$, Person 1 spends $\frac{3}{4}$ of his or her income on Person 2. So Person 2 has an income of $\frac{3}{4} * 5 = 3.75$ dollars. Person 2 will now spend $\frac{3}{4}$ of his or her income on Person 3. And so on to infinity. I instantly recognized this as the sum of a geometric series: $$5*\sum_{n=0}^\infty\left(\frac{3}{4}\right)^{n} = 20$$
This makes sense, but only when disregarding the second concept (MPC decreases as $y$ increases). When I asked about it my teacher said that since calculus isn't a prerequisite for the class we won't go any further in depth; we'll just let MPC be a constant to simplify things in an introductory-level macroeconomics class. So I thought about the problem for a while today and realized that if we did account for MPC decreasing as y increases, or in this case, MPC increasing as $n$ increases, then we could write the total money spent as an infinite series of kind of infinite product (??). My model can be found below.

The Main Question

I just finished Calculus III last fall so I've never formally learned anything about infinite products. I'm not even sure if these are infinite products since many of them are finite. Anyways, can the following infinite series that I came up with be solved for convergence? If so, how can I figure out the number it converges too? Long explanations will be appreciated. Keep in mind I have a very coarse knowledge of mathematics beyond Calculus III.

$$\sum_{i=0}^{\infty} \left(\prod_{n=0}^{i} \frac{n + 2}{\sqrt{n^2 + 5n + 7}}\right)$$

Perhaps it would be better if I knew how to solve the infinite product first.

Also, I came up with the function $\frac{n + 2}{\sqrt{n^2 + 5n + 7}}$ as a model of MPC because I figured MPC should start around $\frac{3}{4}$ and increase asymptotically towards $1$ as $n$ approaches $\infty$.

Does any of this make economic sense or am I missing a major concept?


texts: Explanation of paper's econometric assumptions

texts:
The authors of this paper (http://andrewleigh.org/pdf/GunBuyback_Panel.pdf) appear to be essentially regressing the change in the death rate to the change in guns from a gun buy back in Australia, at the state level: $\Delta$death rate involving guns= $\Delta$guns + $\epsilon$

Specifically, they state on page 16 of the pdf:

  In this paper, we ask whether firearm deaths dropped proportionately
  more in states where relatively more firearms were bought back. If
  the gun buyback itself was effective in reducing firearm-related
  deaths, then this would imply that states where more firearms were
  removed from the population should have seen a greater reduction in
  firearm death rates than the Australian average

On page 17 (of the pdf) it states the following:

  For the purposes of our empirical strategy, what matters is that differences in buyback rates were not correlated with other factors that
  might have affected gun deaths. In particular, we are concerned
  about two potential confounders. First, if differences in buyback
  rates were driven by pre-existing gun ownership rates and if the
  relationship between gun ownership and gun deaths is non-linear, this
  could lead to a spurious correlation. However, although a non-linear
  relationship is theoretically plausible, we have been unable to locate
  any studies supporting such a theory.

I think the concern that the differences in buy back rates were driven by pre-existing gun ownership is because if this was the case (and given that we assume that pre-existing gun ownership could also impact the change in deaths) we would have confounding.  Is this correct?

But I don't understand the concern that the relationship is non-linear?

Can anyone explain the econometric issues?

ADD 1:

I was also interested in page 17 where this is stated. I wanted to link what I read in a paper with the textbook econometrics. Is this an example of the authors arguing that if they find drivers of why the gun buy back rates differ between states, that is not the death rates, that this is evidence that there is no reverse causation?

  Second, our empirical strategy relies on the assumption that the
  state- level gun buyback rate is exogenous with respect to firearms
  death rates. It is thus important to consider the various factors that
  might explain why the buyback rate varied across states.

ADD 2:

The final model used is on page 26 of the pdf. I am a little confused by it but what I think they are doing is the following (I note there is data and stata code HERE but I dont know how to read stata): I believe the change in guns (gun buy back) here is the difference in average guns pre and post 1997 and thus is a constant value for a given state, repeated for each records for a state in the data (each state as multiple records, one for each year).


texts: If I shred a $20 bill, is society poorer? What is the effect on the real economy?

texts:
If the answer is yes, society is poorer, then the converse must hold true: that the government could make us all wealthier by simply printing money.
However, a collapse in the money supply must have an effect on the real economy. One less Chipotle burrito gets sold. More formally, Milton Friedman's entire thesis was that a collapse in the money supply caused the Great Depression.
Which is it, yes or no? And what are its reverberations throughout the "real" economy?


texts: Negative Interest Rates and Pension Funds

texts:
How do negative interest rates impact the future prospect and business model of (defined benefit) pension funds?
What could be winning investment strategies for pension funds in a negative interest rate environment?