Recent Questions - Economics Stack Exchange most recent 30 from economics.stackexchange.com 2022-06-28T11:59:38Z https://economics.stackexchange.com/feeds https://creativecommons.org/licenses/by-sa/4.0/rdf https://economics.stackexchange.com/q/51899 1 Intermediate Consumption vs Savings-Investment in National Income/Expenditure Accounting llllvvuu https://economics.stackexchange.com/users/30496 2022-06-28T10:01:39Z 2022-06-28T11:48:54Z <p>I am trying to fully understand the savings-investment identity; both the Y=C+I+G=C+S+T and inventory accumulation perspectives make sense to me, but I came up with two examples that are a bit confusing and look like are maybe related to <a href="https://en.wikipedia.org/wiki/Intermediate_consumption" rel="nofollow noreferrer">intermediate consumption</a>.</p> <p>Let's say that companies A and B pay employees A and B \$1 respectively, who each spend \$1 on final goods from company A, which spends $1 on X from company B.</p> <p>If X = &quot;The ordinary, regular maintenance and repair of fixed assets used in production&quot; then it is intermediate consumption according to UNSNA and I would assume Y = C = \$2.</p> <p>If X = &quot;Major renovations, reconstructions, or enlargements of existing fixed assets enhancing their efficiency or capacity, or prolonging their expected working lives&quot; then X is not intermediate consumption according to UNSNA. Is it then investment? This would mean C = \$2, I = \$1, Y = \$3. This checks out with the intuition that there is more &quot;value added&quot; here than in the first example. However this would require that S = \$1 and I don't see:</p> <ul> <li>Where does S come from? It looks to me like X is an investment that doesn't come from savings and I can't seem to fit it on any variant of the <a href="https://www.investopedia.com/terms/circular-flow-of-income.asp" rel="nofollow noreferrer">circular flow model</a></li> <li>employees' total salary is \$2 and I don't see a reason <a href="https://en.wikipedia.org/wiki/Personal_income#The_difference_in_personal_income_and_National_income" rel="nofollow noreferrer">here</a> why personal income should be different from national income in this case</li> </ul> <p>Did I get the national income wrong?</p> https://economics.stackexchange.com/q/51896 0 Data - Top 100 global economic entities Arash Howaida https://economics.stackexchange.com/users/12212 2022-06-28T03:24:46Z 2022-06-28T06:29:13Z <p>Around 2016-2017 there was a dataset put together by NGO Global Justice Now <a href="https://www.globaljustice.org.uk/sites/default/files/files/resources/corporations_vs_governments_final.pdf" rel="nofollow noreferrer">listing the top 100 economic entities</a> (including privately owned corporations as well as sovereign countries in the same list). It was widely cited across financial media outlets such as Forbes, Reuters and <a href="https://www.accountancydaily.co/corporations-dominate-worlds-top-100-economic-entities" rel="nofollow noreferrer">others</a>. Since it's been some time, I wanted to see how the constituents of this list have moved around in relation to each other, but it seems that the data is not being maintained. The NGO website appears to be down and as far as I can tell is no longer active.</p> <h2>Question</h2> Aside from Global Justice Now, are there other (open-source) data that measure the same thing and is respected within financial/economic researchers/practitioners? <p><strong>Note:</strong> I realize that lumping the vastly different entities of corporates and sovereigns is not common industry practice but the aim of my research requires this nonetheless</p> <p>Perhaps such a list could be reverse-engineered by integrating multiple data sources: World Bank for countries and some other list for corporations?</p> https://economics.stackexchange.com/q/51894 0 How to define treatment & control groups properly? AMB1274 https://economics.stackexchange.com/users/41595 2022-06-27T22:31:41Z 2022-06-28T07:06:15Z <p>I’m working on a project examining the effect of a 2016 cash transfer on fertility.</p> <p>Who is eligible for the cash? All families with: 1.) 2+ children, or 2.) 1 low-income or disabled child.</p> <p>The data doesn’t have a variable indicating who got the cash transfer, so as I understand it, I would be doing an “intent to treat” analysis by defining the treatment &amp; control groups based on eligibility.</p> <p>However, I keep getting stuck on how to define the treatment &amp; control groups. I guess my question is since the cash transfer is universal for ALL families with 2+ kids, what would be the control group then? Theoretically, there should be two similar groups of families with 2+ kids (one who get the cash transfer and the other who don’t), but that’s not possible in this case?</p> <p>Comparing eligible families (2+ kids or 1 poor/disabled kid) to ineligible families (1 kid that is not poor/disabled or zero kids) would violate one of the core assumptions of causal inference (that the treatment and control groups be similar and only differ in the “treatment”).</p> <p>I think I’m getting tripped up by how the cash transfer is both universal and birth-dependent.</p> <p>I’m exploring using a linear probability model with FE or a DID model, but not sure if a DID makes sense? Synthetic control? Any thoughts on modeling strategies?</p> <p>More context: The data comes from a household survey, which I’ve organized into a panel with fertility histories for each childbearing-aged woman (e.g. each woman has 17 observations, or 18 years containing her time-variant birth information). I have data from 2010-2018 and the program started in 2016. The program grandfathers in anyone who falls in either one of two eligibility categories. The cash transfer is not means or work tested.</p> https://economics.stackexchange.com/q/51891 1 Comparing incomes across regions within a country hmmmm https://economics.stackexchange.com/users/18156 2022-06-27T20:00:43Z 2022-06-27T22:00:51Z <p>When looking at spatial disparities across regions within a country the standard approach that I have seen is to look at differences in incomes across regions.</p> <p>However, this doesn’t control for the impact of local prices. I would have thought we should expect to see local prices increase in areas of higher income.</p> <p>An additional challenge must be data availability here, in that I don’t know if there is good local price data available, certainly not in the country I work. I imagine that we could use local house prices/rents as some proxy for local prices and control for this.</p> <p>Is there a standard way to control for local price effects when comparing incomes across regions? Or at least examples of analysis where this has been done well?</p> <p>Thanks for any help,</p> <p>hmmm16</p> https://economics.stackexchange.com/q/51890 1 Experimenting with Mean Variance Analysis CobbDgls https://economics.stackexchange.com/users/41592 2022-06-27T16:41:57Z 2022-06-27T17:32:51Z <p>here with a question about mean-variance analysis and utility theory hope you can help me.</p> <p><strong>First point</strong></p> <p>My main objetive is to maximize the expected utility from portfolios given by <span class="math-container">$\sigma_p^2=\frac{C}{D}[u-\frac{A}{C}]^2+\frac{1}{C}$</span>. You can see that the latter is the function for the minimum variance frontier, so <span class="math-container">$A,C,D$</span> are all scalars and <span class="math-container">$u$</span> is the objetive expected return.</p> <p>The following Taylor series approximation of the expected utility function around <span class="math-container">$(1+E(r))</span> depends only on mean and variance, if the utility function is quadratic or asset returns are normally distributed</p> <p><span class="math-container">\begin{align} E\left[U(1+r)\right]&amp;\approx U(1+\mu)+\frac{1}{2}U''(1+\mu)\sigma^2\\ \end{align}</span></p> <p>I assume that returns are normally distributed, and set my utility function as function <span class="math-container">\frac{(1+r)^{(1-\gamma)}}{(1- \gamma)},\gamma&gt;1</span>.</p> <p>By the Taylor series approximation, and plugging the minimum variance function, I would then have</p> <p><span class="math-container">\begin{align} E\left[U(1+r)\right]&amp;\approx\frac{(1+u)^{(1-\gamma)}}{(1-\gamma)}-[\dfrac{\gamma(1+u)^{-\gamma-1}}{2}\cdot\frac{C}{D}[u-\frac{A}{C}]^2+\frac{1}{C}]\\ \end{align}</span></p> <p>To find a local maximum, I would differentiate the above function and equate it to 0, as a necessary condition first orden condition, so <span class="math-container">\frac{dE\left[U(u)\right]}{du}=0$</span>.</p> <p>Up to this point my question is really if I am allowed to do this ?</p> <p><strong>Second Point</strong></p> <p>If I am, then my next question is, how can I explain the effects of the risk free asset on the optimum value. By adding the risk free asset my optimum utility is raised, to me it seems normal as this new minimum variance frontier gives less variance for the same level of return, this is, in contrast with the first example, so <span class="math-container">$\frac{(u-rf)^2}{H}&lt;\frac{C}{D}[u-\frac{A}{C}]^2+\frac{1}{C}$</span> for all <span class="math-container">$u$</span> excluding the tangent portfolio. The thing I don't understand is that for the same utility function, when I maximize expected utility with the new minimum variance function, I get a higher utility value, but also my expected objetive return is higher, this kind of makes sense if somehow I could explain this behavior by a risk aversion measure, such as the Arrow-Pratt risk premium. Then again, I don't know where I could apply it, so that I can calculate exactly the change in the optimum value when considering a risk free asset and when not considering it. I add some of my results, hope it becomes clearer</p> <p><a href="https://i.stack.imgur.com/LyhcS.png" rel="nofollow noreferrer"><img src="https://i.stack.imgur.com/LyhcS.png" alt="Results of given different risk aversion parameters" /></a></p> <p>my minimum variance function scalars are <span class="math-container">$A=9.75, B=0.176,C=1072,D=9.38,H=B-2Arf+rf^2C$</span>, <span class="math-container">$rf=.0017$</span></p> <p>$$</p> <p>Lastly, just to be clear with the last point, I wish to model the change in the optimum value when adding a risk free asset. So for example, for <span class="math-container">\gamma=3</span> I would like to explain analytically going from -.4775 to -.4727 when adding the risk free asset.</p> <p>Please help me ! Thanks !!!</p> https://economics.stackexchange.com/q/51889 1 Difference-in-difference robust to heterogeneous treatment effect - Gendron-Carrier et al. specification Galactus https://economics.stackexchange.com/users/41581 2022-06-27T16:27:27Z 2022-06-28T07:13:35Z <p>I am trying to extend the results of <a href="https://www.aeaweb.org/articles?id=10.1257/app.20180168" rel="nofollow noreferrer">Gendron-Carrier et al. (2022) article</a> published in the <em>American Economic Journal : Applied Economics</em> which is about the effect of subway opening on pollution.</p> <p>I want to use an estimation method robust to heterogeneous treatment effects (meaning that the effect of subway opening on air pollution may have a different <em>trend</em> throughout the different cities where it is implemented).</p> <p>I cannot understand if the <a href="https://www.aeaweb.org/articles?id=10.1257/aer.20181169" rel="nofollow noreferrer">recent robust estimator proposed by De Chaisemartin and d'Hautfoeuille (2020)</a> which is for two-way fixed estimation can be used in my case.</p> <p>The specification of Gendron-Carrier is as follows :</p> <p><span class="math-container">AOD_{it} = \beta_i + \alpha_1D_{it} + \gamma'X_{it} + \epsilon_{it}</span></p> <p>Where <span class="math-container">AOD</span> is a measure of air pollution, <span class="math-container">D_{it}</span> is a dummy variable equal to 1 when the subway has opened 18 months ago, <span class="math-container">X_{it}</span> is a set of controls consisting of year-by-continent indicators to flexibly account for regional trends in AOD, and city-by-calendar month (1–12) indicators to capture seasonality in pollution patterns as well as climate controls. <span class="math-container">\epsilon_{it}</span> is the error term of the equation.</p> <p>Do you think the <a href="https://www.aeaweb.org/articles?id=10.1257/aer.20181169" rel="nofollow noreferrer">De Chaisemartin and d'Hautfoeuille</a> applies in this case?</p> <p>Is this a two-way fixed effects estimation?</p> <p>In our case how can we apply an estimation method robust to heterogeneous treatment effects?</p> https://economics.stackexchange.com/q/51887 1 Does Varian define the MRS differently/ as negative? Javier H https://economics.stackexchange.com/users/41593 2022-06-27T15:11:13Z 2022-06-27T15:34:03Z <p><a href="https://i.stack.imgur.com/hvPE9.png" rel="nofollow noreferrer"><img src="https://i.stack.imgur.com/hvPE9.png" alt="MRS According to Varian" /></a></p> <p>Varian defines the MRS as the slope of the indifference curve. However, Snyder/Nicholson (and apparently Wikipedia) define the MRS as the <strong>negative</strong> of the slope. Does Varian use a different definition, or am I missing something? Thanks.</p> https://economics.stackexchange.com/q/51885 0 Should asset prices be always normalized by M2 spacemonkey https://economics.stackexchange.com/users/23284 2022-06-27T14:51:30Z 2022-06-27T15:04:58Z <p>When economists look at the financial asset prices, do they adjust them by something like M2 in order to judge how valued something is compared to the previous historic periods? It seems like otherwise one is looking at a non-normalized version of the data, no?</p> https://economics.stackexchange.com/q/51879 2 Are standard discrete choice models based on ordinal utility or cardinal utility? ExcitedSnail https://economics.stackexchange.com/users/28554 2022-06-26T10:46:08Z 2022-06-26T10:46:08Z <p>Suppose we model consumer's choice between three brands Honda(choice 1), Toyota(choice 2) and BMW(choice 3) using a standard discrete choice model, with the utility of choice <span class="math-container">j\in\{1,2,3\}</span> being specified as <span class="math-container">U_j=V_j+\epsilon_j</span> where <span class="math-container">\epsilon_j</span> is unobserved error term and <span class="math-container">V_j=X\beta_j</span> with <span class="math-container">X</span> being some observed covaraites. Suppose consumer choose choice <span class="math-container">j</span> if and only if it gives the highest utility. My question is, are we implicitly assuming the consumer being maximizing cardinal utility or ordinal utility? I feel it seems like ordinal utility because in identification and estimation, we do location and scale normalizations which implies that the actual utility number do not matter.</p> https://economics.stackexchange.com/q/51877 -2 Tax and welfare in Australia Dbl https://economics.stackexchange.com/users/41426 2022-06-26T06:48:39Z 2022-06-27T10:08:45Z <p>In the following diagram the blue line represents the net income versus gross income, assuming the Australian progressive income tax, plus the Jobseeker welfare payments for a single person with no dependents. The red line shows the net income if instead a flat tax rate of 40% is used, and everyone receives a UBI of 17000. I'm ignoring the 10% GST.</p> <p><a href="https://i.stack.imgur.com/cHJqe.png" rel="nofollow noreferrer"><img src="https://i.stack.imgur.com/cHJqe.png" alt="net income versus gross income" /></a></p> <p>It seems a flat tax together with UBI can produce a result which is remarkably similar to the combination of the existing progressive income tax plus welfare in Australia.</p> <p>The blue line has a low gradient where the gross income is between around \7000 and \32000. In fact the effective marginal tax rate (when accounting for welfare) is 67.6 cents in the dollar in this section. The marginal rate for the very rich is only 45 cents in the dollar, so this doesn't seem reasonable. The existing system seems particularly unfair for those on a gross income of about \32000. They seem to end up with about \6500 less net income that would be expected given the effective tax on people with other incomes.</p> <p><a href="https://i.stack.imgur.com/dRDNk.png" rel="nofollow noreferrer"><img src="https://i.stack.imgur.com/dRDNk.png" alt="net income versus gross income" /></a></p> <p>My question is: would this have been intentional? Is there any justification for designing a system in this manner?</p> https://economics.stackexchange.com/q/51876 2 Who is Hayek referring to in this statement about taxonomy in economics? Davis Clute https://economics.stackexchange.com/users/27161 2022-06-26T03:36:47Z 2022-06-26T09:38:08Z <p>In Hayek's essay, 'The Facts of the Social Sciences,' he mentioned &quot;that one of the best-known modern critics of the discipline has described [economics] as a purely taxonomic science.&quot;</p> <p>Who is he referring to?</p> https://economics.stackexchange.com/q/51874 0 Recycling tax revenues hmmmm https://economics.stackexchange.com/users/18156 2022-06-25T20:12:48Z 2022-06-26T12:50:22Z <p>I read a recent <a href="https://9tj4025ol53byww26jdkao0x-wpengine.netdna-ssl.com/wp-content/uploads/Making-markets-through-the-UKIB-The-green-homes-infrastructure-opportunity-.pdf" rel="nofollow noreferrer">policy paper</a> (bottom of page 4, KfW being the German development bank) that asserted that the German government’s spend on subsiding energy efficiency schemes in homes was revenue neutral, as the subsidy stimulated enough private sector investment that the spend was offset by increase VAT returns.</p> <p>I was told that this was an economically illiterate piece of reasoning. I’m wondering why?</p> <p>My assumption is that it is because it does not consider:</p> <p>a) what would have happened if the government had invested the money in something else and what investment that would have generated</p> <p>b) what else the private sector would have invested in had the government subsidy not been there (e.g. some smaller sum invested in energy efficiency and the rest likely somewhere else that would have also generated tax revenue.</p> <p>c) it doesn’t consider discounting (e.g. the tax returns would have come in some years after the initial government investment)</p> <p>Is my understanding here right, or am I missing something?</p> <p>Thanks for any help,</p> <p>hmmm16</p> https://economics.stackexchange.com/q/51873 0 Income and substitution effects hmmmm https://economics.stackexchange.com/users/18156 2022-06-25T19:59:20Z 2022-06-26T14:21:37Z <p>I’m currently reading the core economics textbook, and I’m confused by the description of income and substitution effects.</p> <p>The income effect is defined as the effect on the point where marginal rate of transformation (wage) equals marginal rate of substitution from an increase in income but not a change in marginal rate of transformation (wage).</p> <p>The substitution effect is defined as the effect on the point where marginal rate of transformation (wage) equals marginal rate of substitution due to a change in the marginal rate of transformation (wage).</p> <p>The following diagram is then used to explore this: <a href="https://i.stack.imgur.com/XIv7p.png" rel="nofollow noreferrer"><img src="https://i.stack.imgur.com/XIv7p.png" alt="enter image description here" /></a></p> <p>I understand that the income effect is the move from A to C. And the substitution effect, changing the marginal rate of transformation (wage) gives the move from A to D.</p> <p>But I don’t understand what this overall effect is in this context, nor why it is not simply the move from A to D.</p> <p>(Note: I have assumed that the presentation and definitions here are standard. If that’s not the case I can provide more detail).</p> <p>Thanks for any help,</p> <p>hmmm16</p> https://economics.stackexchange.com/q/51872 0 Short marketing book for intermediate user61801 https://economics.stackexchange.com/users/41584 2022-06-25T19:39:45Z 2022-06-25T19:39:45Z <p>I read a short introduction to marketing (50 pages) through one of those X-day-MBA. Now I would like to take marketing a step further.</p> <p>I had a brief look at Principles of Marketing (Kotler, Armstrong), but it is way too long and seemed quite diluted content. I would like something more dense, 3-400 pages max. Bonus points for paperback.</p> <p>Any advice?</p> https://economics.stackexchange.com/q/51871 3 Reference request: a book on numerically solving DSGE models with code krishnab https://economics.stackexchange.com/users/20443 2022-06-25T16:17:14Z 2022-06-25T16:38:49Z <p>I am new to the area of DSGE modelling, and programming DSGE models. I was hoping that someone could recommend a book on DSGE modelling, that presents the different model components as well as code for numerically running/optimizing the components of those models. I am particularly interested in the numerical methods for solving these models.</p> <p>As I am learning more about these models, it helps to have some existing simple solved codes, so that I know what working examples look like. That way when I run experiments, I have a bit more confidence that I am doing it correctly.</p> <p>So far the best resource I have found are the <a href="https://quantecon.org/lectures/" rel="nofollow noreferrer">quantecon lectures</a>. These lectures use both the Julia and Python languages, and I am well versed in both. In terms of the reference request, any language would probably be good, matlab, julia, python, etc. What I would like to avoid is just using a package or black box, where the internals are hidden from the user.</p> <p>Thanks.</p> https://economics.stackexchange.com/q/51865 2 Proof of the tangency condition in UMP xyz123 https://economics.stackexchange.com/users/41344 2022-06-24T20:36:02Z 2022-06-25T13:35:01Z <p>When an indifference curve is tangent to the budget line such that the preferences are convex and monotone, why is the point of tangency an optimal for an <a href="https://en.wikipedia.org/wiki/Utility_maximization_problem" rel="nofollow noreferrer">UMP</a>?</p> <p>Given the budget line <span class="math-container">p_1 x + p_2 y = I</span>, let MRS<span class="math-container">_{xy} = \frac{p_1}{p_2}</span> at some point <span class="math-container">(a,b)</span>. Define MRS as <span class="math-container">\frac{dy(x)}{dx}</span> where <span class="math-container">y : (a-\epsilon, a+\epsilon) \to \mathbb{R}</span> for an appropriately small <span class="math-container">\epsilon &gt; 0</span>. This is to say that the optimal IC is differentiable around the point of tangency, and any other point (in this or other IC or of <span class="math-container">U</span> may not be differentiable).</p> <p>I have come across this often but I haven't seen a proof. If <span class="math-container">U</span> is differentiable everywhere, then the Kuhn-Tucker condition is satisfied and the result follows. The problem is when every point is not necessarily differentiable except for a region of the corresponding IC around the tangency point.</p> https://economics.stackexchange.com/q/51786 -2 Economic consequences of taxing every dollar in the bank rather than earners alone Creator https://economics.stackexchange.com/users/30980 2022-06-17T17:46:44Z 2022-06-25T21:02:41Z <p><strong>EDIT Motivation</strong>: There is a clear distinction between human's &quot;basic needs&quot; and &quot;wants&quot; if not, every govt should have its own distinctions. The point is, that each Govt should be capable of satisfying the basic needs of the people first, before considering anything else. To achieve this goal, IMHO, one needs to organize the requirement at the source. <strong>For every dollar Govt prints, a percentage needs to go towards providing the basic needs</strong>. A Govt needs to be rich in order to do justice to the people. In addition, human needs to understand that <strong>primary</strong> purpose of the work is to serve humanity, not to earn money for themselves alone.</p> <p>I am trying to understand the economic consequences if a country decides to tax every bank account but not the earner alone. This means instead of income tax, govt would collect money by having negative interest rates on the people or companies, who have money in their banks. The reason for such action is to reduce inequality. This can have a balance version as well, meaning some amount tax and some negative interest on the saving accounts.</p> <p>The idea of negative interest is that you pay money to the Govt instead of getting money from the bank as interest. Here, saving is not encouraging as the present crisis is related to an imbalance of money in people's accounts. This is derived from the fact that poor people have no money to do anything but some have all to do anything.</p> <p>EDIT: Here assumption is work and money are replaceable and a kind of one-to-one bijection and reversible mapping. The present tax system replaces work with money, my question is, can we rotate money with money (or add a map/cycle in the system). Can we have money to the money in the tax system as well (not a job to money alone, which is the present tax system)?</p> <p>There is no reference to the above, as it is an idea to reduce the imbalance of living standard of people of the world.</p> <p>EDIT: The question may not be clear because we tend to differentiate money between different accounts. For example money in a savings account is treated differently than in a loan account. My point is this distinction is artificial? Both should be treated as the same. Secondly, any other form of value is not in the picture, so the question has nothing to do with the existing wealth tax.</p> <p>EDIT: The closest I can think of is sales tax. You pay tax for each sale it does not matter who sells to whom and what it is. Exactly you pay tax on each dollar in the bank.</p> <p>EDIT: Example: A person/company has different bank accounts for example say Checking accounts, Savings accounts, Money market accounts,(MMAs), certificate of deposit accounts (CDs), and the person/company has 100 dollars in each account so the person/company pays tax on 400 dollars. One can say it is a kind of wealth tax but wealth is related to cash alone.</p> <p>The question is if there is a tax i.e. to pay to the Govt, from every bank account (like every job pays tax). whether this would lead to unsustainable &quot;economic consequences&quot;?</p> <p><strong>EDIT</strong>: Finally, I think I got the correct terminology. Wikipedia states that the financial position of the United States contains assets of at least 269.6 trillion and debts of 145.8 trillion. I postulate there would be at least that much cash in the USA. This cash may not be in bank accounts but must be in some form, in people's or companies' names? <strong>My whole question was to tax on these amounts not on &quot;income&quot;</strong>.</p> <p><strong>Final EDIT</strong>: It is not wealth tax. For example, X has 500K and bought a house from Y. Now X does not pay tax but Y does, as he has 500K. Now if X borrows 200K by mortgaging the house then he has to pay tax on 200K. The general concept is that X should not pay tax as he is taking a loan. The point is paying interest is not a contribution to society so it should not be an excuse for not paying taxes. Proposing to change paying tax on the basis of income but it is based on the worth of a person. I am not saying there should not be a wealth tax I am just explaining in this edit the difference between the wealth tax and the proposed one.</p> https://economics.stackexchange.com/q/51770 0 Why does the dollar seem weak? joshuaebs https://economics.stackexchange.com/users/41489 2022-06-16T13:48:32Z 2022-06-25T12:14:48Z <p>2:00 (GMT+8) - The FED raised interest rates at 0.75-percentage-point (75 basis points I believe, not sure with terminology but definitely now at 1.75%). But even so, why does the USD seem weaker? I understand that there are other macroeconomic factors to consider, perhaps that of the other currency against the dollar, but what am I missing, because the other 7 currencies seem stronger (AUD, NZD, CAD, JPY, EUR, GBP, CHF).</p> <p>4H Chart: <a href="https://i.stack.imgur.com/kxu2d.jpg" rel="nofollow noreferrer"><img src="https://i.stack.imgur.com/kxu2d.jpg" alt="enter image description here" /></a></p> <p>Daily Chart: <a href="https://i.stack.imgur.com/nDjV2.jpg" rel="nofollow noreferrer"><img src="https://i.stack.imgur.com/nDjV2.jpg" alt="enter image description here" /></a></p> https://economics.stackexchange.com/q/51694 1 Inflation and Purchasing power Lex_i https://economics.stackexchange.com/users/41437 2022-06-09T20:51:40Z 2022-06-25T11:50:25Z <p>I keep hearing that inflation is a measure of purchasing power. To me this means that if inflation is say, 3%, then purchasing power declines by 3%. That can' be true, yes? During the 70s inflation was over 6%, but that doesn't tell you that on average you'd expect a 6% loss in gas purchasing power, because gas prices were affected by the oil embargo crisis and foreign policy (the israeli military conflict at the time). Consumers saw gas prices inflate far, far more than 6%.</p> <p>So how is it that we can say inflation is a measure of purchasing power? I can understand saying that inflation affects purchasing power, but for it to be a measure of it doesn't seem right.</p> https://economics.stackexchange.com/q/51580 2 Currency vs purchasing power? entropyfeverone https://economics.stackexchange.com/users/41335 2022-05-29T08:19:46Z 2022-06-28T10:00:20Z <p>When I search the internet about which is the strongest currency, the answer is the currency which buys more from other currencies. For example if 1 euro can buy 10 dollars then euro is a stronger currency. But, the conversion rate does not take into account the purchasing power. What if I needed 1 dollar to buy a bottle of water but the price of a european water is 100 euros ? Wouldn’t than mean that dollar is stronger than euro ? Also, I cannot understand why swiss franc is so high since Switzerland is so small country. I mean in order to spend CHF you have to live in Switzerland which most of people don’t so why is it so high valued ?</p> https://economics.stackexchange.com/q/48497 4 Cobb-Douglas Production Function - Finding units of labour to maximise production James Burton https://economics.stackexchange.com/users/38695 2021-11-23T14:55:44Z 2022-06-26T21:33:14Z <p>Given production function <span class="math-container">f(L,K)=16L^\frac{1}{4}K^\frac{3}{4}</span>, where each unit of labour costs £50 and each unit of capital costs £100 and you have a budget of £500,000. Find the number of units of labour to maximise production.</p> <p>We were given this question in a maths class, so I am slightly unsure of my solution, as follows:</p> <p>We have <span class="math-container">Y = 16L^\frac{1}{4}K^\frac{3}{4} + \lambda(500,000-50L-100K)</span></p> <p><span class="math-container">\frac{\partial Y}{\partial L}=4L^\frac{-3}{4}K^\frac{3}{4}-50\lambda =0</span></p> <p><span class="math-container">\frac{\partial Y}{\partial K}=12L^\frac{1}{4}K^\frac{-1}{4}-100\lambda =0</span></p> <p><span class="math-container">\frac{\partial Y}{\partial \lambda}=500,000 - 50L - 100K =0</span></p> <p>Then, <span class="math-container">\frac{(\frac{\partial Y}{\partial L})}{(\frac{\partial Y}{\partial K})} = \frac{4L^\frac{-3}{4}K^\frac{3}{4}}{12L^\frac{1}{4}K^\frac{-1}{4}} = \frac{50 \lambda}{100 \lambda} </span></p> <p><span class="math-container">\implies \frac{K}{3L}=\frac{1}{2} \implies k = \frac{3}{2}L</span></p> <p>Then inputting into <span class="math-container">\frac{\partial y}{\partial \lambda}, 500,000 = 50L + 100(\frac{3}{2}L) = 200L</span></p> <p><span class="math-container">\implies L = 2,500</span></p> <p>Therefore, at a budget of £500,000, 2,500 units of labour maximises production?</p> https://economics.stackexchange.com/q/39082 0 If Lebanon has a shortage of dollars, are USD donations meaningless? Daniel B https://economics.stackexchange.com/users/29945 2020-08-06T09:53:23Z 2022-06-25T15:08:00Z <p>I was reading about the dollar crisis in Yemen the other day, which mentioned that even people who owned dollars couldn’t withdraw them.</p> <p>If the situation with Lebanon’s currency is similar, what effect does that have on donations of USD to Lebanese organizations that don’t bring in new paper currency?</p> https://economics.stackexchange.com/q/36603 1 Transparent Fractional-reserve banking as an alternative to the current system davidbrown https://economics.stackexchange.com/users/27935 2020-05-12T10:56:49Z 2022-06-25T17:06:15Z <p>I come from a layman perspective, but I've been trying to understand macroeconomics and finance. Currently I'm struggling with the current topic. Here I'm not worried about the system transition just arguing about the consequences of two different systems.</p> <p>I accept that lending capital that is not being used is great for growing the economy, and banks seem a great and impersonal way to intermediate between borrowers and lenders. <strike>I understand fractional-reserve banking in it's current form, but I disagree with it, it makes the good times better and the bad times worse and than we need monetary policy to smooth it out. Wouldn't it make more sense to smooth banking in the first place?</strike> But expanding the money supply by lending money but still keeping it available in a deposit account seems to lead to financial bubbles. I argue that we could avoid this by being transparent about deposits in the following way:</p> <ul> <li>When you open an account you settle how much you're comfortable to loan out and must be made aware of the risks implied.</li> <li>When you check your balance, the funds that have been loaned out or are marked to be loaned out are displayed but are not available to use.</li> <li>This makes intuitive sense to me because if I lend 100\ to my friend, than I'm short of those 100 and I'm aware of that, I can't use them. Why shouldn't banks be held up to this standard?</li> </ul> <p>I argue that this would avoid bank runs, because you can clearly check how much is available and won't fear that you'll lose everything, while still having the benefits of borrowing albeit with slower growth but also milder recessions. This might be argued to be impractical, but dealing with the consequences of the current system seems to me to be even more impractical.</p> <p>Would this be a realistic alternative, and if so what would be the effects on the economy, comparing to the current system?</p> https://economics.stackexchange.com/q/30422 2 What is the graphic intuition behind Marginal rate of subsitution SLHep https://economics.stackexchange.com/users/23931 2019-08-06T02:38:39Z 2022-06-26T03:04:00Z <p><a href="https://i.stack.imgur.com/uKTvl.png" rel="nofollow noreferrer"><img src="https://i.stack.imgur.com/uKTvl.png" alt="enter image description here"></a></p> <p>So I think I understand the math, but I don't understand the intuition on a 3d graph. Why does the ratio of partial derivatives give us a tangent line on a level curve(indifference curve)? My understanding is <span class="math-container">\frac{\partial U(x_1,x_2)}{\partial x_1}</span> Will give a tangent line parallel to the <span class="math-container">U(x_1,x_2), x_1</span> plane and <span class="math-container">\frac{\partial U(x_1,x_2)}{\partial x_2}</span> Will give a tangent line parallel to the <span class="math-container">U(x_1,x_2), x_2</span> plane. So why does dividing them end up with a tangent line parallel to the <span class="math-container">(x_1, x_2)</span> plane?</p> https://economics.stackexchange.com/q/29768 1 In a social accounting matrix, what does Capital refer to? Sarah https://economics.stackexchange.com/users/23243 2019-06-12T21:07:39Z 2022-06-27T23:02:45Z <p>In the process of building a social accounting matrix for Panama, I am trying to understand what capital refers to. The Panamanian National Accounts have tables on capital, but they describe gross capital formation. In a social accounting matrix, gross capital formation represents investment and not capital. So what does capital mean?</p> <p><a href="https://i.stack.imgur.com/k4m34.jpg" rel="nofollow noreferrer"><img src="https://i.stack.imgur.com/k4m34.jpg" alt="A social accounting matrix"></a></p> <p>I was also wondering if capital was included as part of Gross Value Added (GVA) and, if so, could it be calculated using GVA data?</p> <p>Thank you!</p> https://economics.stackexchange.com/q/26340 0 Monthly price elasticity and possibility of using daily values axel2020 https://economics.stackexchange.com/users/20710 2019-01-09T10:26:40Z 2022-06-25T23:01:45Z <p>I am calculating the price elasticity as a starting point to find a theoretical optimal price that would maximize our revenue.<br> I am looking at <strong>2 years data</strong> and to use the price elasticity formula, I am considering <strong>monthly values separately</strong> <em>(this also because given the strong seasonality we have, i would expect different elasticity per month and I would like to suggest different prices every month).</em> </p> <p>To get the <strong>monthly Price Elasticity</strong>, I calculate for each month Prices and Quantities of the respective year: </p> <p><span class="math-container">$$ \frac{(Q^{2018} - Q^{2017})/Q^{2017}}{(P^{2018} - P^{2017})/P^{2017}}$\$</span></p> <p><strong>Question 1:</strong> Is this correct? Using aggregated monthly data is enough? What if I had also 2016 data? How could I put this extra information in the formula? </p> <p><strong>Question 2:</strong> Could I use daily data to calculate the price elasticity? Could I plot 2 years data and use the linear trend line for the elasticity calculation? </p> <p>Thanks in advance, any help is highly appreciated!</p> https://economics.stackexchange.com/q/25312 0 Does Preference have a Hierarchy? A Silly Question Andrew https://economics.stackexchange.com/users/20032 2018-11-02T12:53:01Z 2022-06-25T22:00:35Z <p>I have what is probably a very silly question, but I have gone down the rabbit hole and can’t get back out.....</p> <p>Is there is a hierarchy of preference, and within each level of choice do we reset the rationality clock? i.e. suppose I choose a property investment (my investment preference) as I believe it will maximise my utility over investments X and Y. I am a utility maximising rational econ. However, a layer down, I choose to invest in property B instead of property A, despite property A being a better investment on every financial indicator. I do so, because in this round of choice, property B meets my preference, which is based upon having a new build property, which is closer to home. </p> <p>I am maximising utility and acting rationally for my new preference, but not in relation to my first preference. In choosing investment B, am I therefor acting rationally or irrationally? Or have I got this all wrong?</p> https://economics.stackexchange.com/q/24981 1 J Curve and DD Schedule in the Short Run (International Finance) ereHsaWyhsipS https://economics.stackexchange.com/users/19775 2018-10-12T23:08:07Z 2022-06-28T03:04:01Z <blockquote> <p>Assume that the J-curve is true. What would the DD curve look like during the early period of the J-curve (where the value effect dominates)? What would the effect of temporary changes in monetary and fiscal policy look like with this DD curve?</p> </blockquote> <p>I assume that the DD curve might be downward sloping because of the value effect, but I'm unsure how temporary changes in government spending and temporary changes in the money supply will affect the AA and DD schedules in this scenario. Would somebody please explain?</p> https://economics.stackexchange.com/q/20401 0 World Stock Markets that went up in 2008 Trajan https://economics.stackexchange.com/users/5515 2018-02-02T20:16:48Z 2022-06-25T13:07:55Z <p>We all know that the US stock market(s) collapsed in price in 2008, see <a href="https://en.wikipedia.org/wiki/United_States_bear_market_of_2007%E2%80%9309" rel="nofollow noreferrer">https://en.wikipedia.org/wiki/United_States_bear_market_of_2007%E2%80%9309</a>.</p> <p>I was wondering what countries' stock markets went up throughout this period.</p> <p>Include things like frontier markets and not just developed countries.</p> <p>I cannot find a data source online.</p> https://economics.stackexchange.com/q/19809 1 Is a lack of "rules" dangerous for cryptocurrency Michael Presman https://economics.stackexchange.com/users/14880 2017-12-22T03:13:26Z 2022-06-27T08:44:11Z <p>An issue/disadvantage that the gold standard had was a lack of mechanisms that forced economies to abide by the rules of the game. As a result, they could at any time de-monetize gold and therefore hurt the whole purpose behind it.</p> <p>Can't this same idea be applied to crypto-currency? If one day individuals decide to not put any value behind XYZ-Therum Crypto (using a generic name), won't that cause a collapse?</p> <p>Also, isn't there a danger in the lack of regulations behind it?</p> <p>Why can't I invent MikeIsCool-Coins. I make a website, with a wallet and say that the direct quote for MikeIsCool-Coins is 1BTC. I then give myself how ever much I want MICC, trade it to bozos for BTC, then sell the btc for USD, renderring myself a millionaire?</p> <p>And this scheme, as a result of a lack of regulation puts no consequences on me?</p> <p>Thank you, I'm just trying to challenge crypto. I think a currency backed by prime numbers (something that itself holds no value, where FIAT money is based by a promise) is complete nonsense.</p>