All Questions
Tagged with macro or macroeconomics
3,002 questions
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Government using tax to cover for spending without increasing inflation
If, at full employment, the government wants to increase its spending by 100 billion without increasing inflation in the short run, it must do which of the following?
Raise tax by more than 100 ...
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Do changes in fixed taxes have a bigger effect on real GDP compared with government spending because they affect consumption
True or False: Changes in fixed taxes have a bigger effect on real GDP compared with government spending because they affect consumption
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Relationship between interest rate and price level
I read that when interest rate goes up, price level tends to decrease as a result of consumption and investment going up. This implies that the two moves in opposite direction.
But at the same time, ...
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Does a Homothetic Function with Respect to Consumption and Hours Worked Satisfy Certain Conditions in Fiscal Policy Models?
Proposition 3: If the utility function is homothetic with respect to consumption and hours worked, then the steady-state capital tax is zero.
Proof: This class of preference satisfies:
\begin{equation}...
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Meaning of "structural" in VAR
I'm studying VAR model and I think there are two meanings of "structural" in VAR.
(1) Structural form model
In here, "structural" means the model that error terms are not ...
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For my bachelors, would it make sense to use C+G (as Consumption + Government Expenditure) as an indicator for the prosperity of the economy?
Because G is also really just consumed by the people, wouldn´t it make sense to measure all the things that people consume to measure the prosperity of an economy?
At the end of the day, people in an ...
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How Demand of a product affects the currency
Question : Iron ore is Australia's largest export. Suppose that there was an unexpected increase in demand for Australia's iron ore exports globally. Explain what this would do to Australian Dollar ...
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Intuition for money supply and interest rates
I'm currently working through the textbook Macroeconomics: European Perspective. I'm on chapter 4: financial markets. I'm struggling with the intuition for why increases in the central bank money ...
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Taylor rule in the context of the IS-LM model
In terms of the IS-LM model, what is the Taylor rule attempting to do?
Inflation goes above target when there's an output gap. This can happen as a result of an LM shock or IS shock.
LM shocks are ...
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Long term bond yields determinants
Can you pls explain why long-term nominal interest rates should be around of the level of nominal potential GDP?
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Questions about output, quantity, level of output and quantity of output, investment level
Hope your week went well.
These may be basic facts known to many but I am afraid that I have misunderstood the terms.
Does quantity of a good mean the amount demanded or supplied?
Does output refer ...
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Descriptions of monetary policy and data
Monetary policy is described in terms of restoring output to potential output, or equivalently, in terms of adjusting the interest rate until it corresponds to the neutral rate of interest so that the ...
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Real wages fluctuation as per classical economics
I have just started studying Macroeconomics and have noticed that as per the Classical economics, the real wage level will always remain same because any change in price level in the market is ...
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Change in inventory
Inventory change=last period's ending inventory- the current period's ending inventory.
Change in inventory= production of the firm during the year- sale of the firm during the year
No doubt in (1) ...
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If SRAS decreases, does nominal GDP increase or decrease?
A decrease in SRAS would decrease real GDP, as producers would stop producing as much for whatever reason. This would also cause inflation, though. So what net effect does this have on nominal GDP? Is ...
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Exercise 8.8 Ljungqvist and Sargent, Corner Solutions
This question is exercise 8.8 from Ljungqvist and Sargent "Recursive Macroeconomic Theory" 3rd edition.
I repeat the question here for clarity.
There is a pure endowment economy and two ...
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Expected welfare log-normal
I am reading a paper that assumes that individuals just consume their income and that welfare is $y^{1-\gamma} / 1-\gamma$, and they focus on the case where $\gamma>1$. If income is log-normally ...
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SVAR: proof of the $(K^2-K)/2$ restrictions and identifiability?
I'm currently using Structural vector autoregressive models by Kevin Kotzé to learn Vector Autoregression. One of the points that it makes is the following:
the number of restrictions that we need to ...
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Can someone help me how to perform quarterly chain linking?
Assume we have given apples and oranges; If we only consider annual chain-linking, it is pretty simple, e.g. let us have the following values:
Year 1
Year 2
Year 3
Year 4
Apples
Amount: 10, Price:3, ...
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Determinants of long term interest rates
Can you pls explain why long-term nominal interest rates should be around of the level of nominal potential GDP? What would be the macroeconomic forces behind it?
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What's the best measure of liquidity or money inside the market?
What's the best measure of liquidity or money inside the market? Often times, the Federal Reserve prints money or buy stocks or give emergency loans, and all these actions cause money to increase in ...
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Net Neutrality and Recent Telecom Projects
It has come to my attention that the big telecom providers are launching some big infrastructural projects recently (at the time of post, Jan. 2018). I presume by that they mean talking laying cables ...
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How does inflation impact long-term economic growth?
I’ve been studying economic growth models and am curious about the role of inflation. I understand that moderate inflation is often considered normal in a growing economy,
Are there any models or ...
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GDP calculation with production and sales in different time periods
This is question from MACROECONOMICS N. GREGORY MANKIW. Correct answer is D.
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J Curve and DD Schedule in the Short Run (International Finance)
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 ...
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Negative Inflation, AS/AD framework, What Graph to use?
My macroeconomic homework contains the question below, and I'm not sure what graphs we're suppose to use to solve it. I believe I can answer the whole question using the IS-MP Diagram, but do I need ...
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Balance of Trade ( Surplus and Deficit)
I'm new to economics. I want to ask that what remedies that the government can actually employ to address the deficit/surplus in the fish trade balances over time?
My attempt,
Trade deficit
(i) The ...
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1
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Have there been any structural changes in the market that would lead the indexes to be trading so high?
If you look at this graph of the SnP500:
You will see that it is trading at levels higher than pre 08 or 99. What systemic structural changes in the market have led it to be trading so high? I think ...
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180
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How can Unemployment rise when Nonfarm Payrolls rises
I'm new to macroeconomics and trying to understand recent macro news. On June 07 2024 two indicators released:
Unemployment increased from 3.9% to 4.0%
US Nonfarm Payrolls (NFP) rose by 272K in May, ...
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Logic behind uncovered interest rate parity?
So I am having trouble understanding the UIP equilibrium condition.
Namely, according to UIP, when the home country has a higher interest rate than the foreign country, its currency will depreciate ...
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Monetary policy: could there by alternative outcomes?
Firstly, I understand the standard analysis of how a central bank attempts to modulate credit conditions in the economy (and therefore money supply) to dampen demand to prevent excess price level ...
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Recommend study material that treat economics the way Statistics and Accountancy are treated, with proof and calculations from real-life data
Background:
Recently, I was asked by a student to help with their college project where they were performing economic analysis of a LLC based on its annual report. I recommended the Cobb-Douglas ...
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How to Apply the Bellman Equation with Two Control Variables in an Optimal Growth Model
I'm currently studying an optimal growth problem involving a representative consumer, and I'm having trouble using the Bellman equation when there are two control variables involved.
Specifically, I ...
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Why are marginal wages used when solving for the natural rate of unemployment?
In blanchard's macroeconomics, in analysing the labor market and solving for the natural rate of unemployment, he explains a model where the real wage workers are willing to accept, W/P = F(u,z), ...
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A generations funds to reduce the debt
In Canada, the Province of Quebec created a generations fund in 2006 in order to reduce the debt.
As of March 2023, Québec’s net debt stands at $206.8 billion, or 37.4% of GDP..
Do you know if any ...
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Counterfactual analysis in SVAR
Counterfactual analysis is used when we want to compare the actual IRF with counterfactual senario IRF. For example, if you want to examine inflation response to oil price shocks just ignoring the ...
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Why does the demand for central bank money shifts to the right with an increase in the reserve rateo?
Defining the demand for central bank money as $ [c + \theta (1-c)]M^d $,
where c = percentage of money people keep as currency, and $\theta$ the reserve rateo, I don't understand why, as my book ...
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Is the neutral interest rate a constant?
Former Fed chair Ben Bernanke explains in his textbook, that the reason the Fed adjusts its target interest rate is because there are IS shocks that change the equilibrium interest rate or the ...
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Consumption based asset pricing - covariance of consumption and returns impact on asset price
I'm reading about consumption based asset pricing model. I don't fully understand a basic equation below.
Let's start with the law:
$$
p_t = E_t\left[\beta \frac{u'(c_{t+1})}{u'(c_t)}p_{t+1}\right]
$$
...
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Why are Western Europeans so much poorer than Americans?
According to https://en.wikipedia.org/wiki/Disposable_household_and_per_capita_income, PPP-adjusted median disposable income (so inclusive of cost of living, taxes, and social transfers) is ...
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Positive productivity shock with a fall in output
I am modeling a two-country world. Within each country there exists a representative infinitely-lived agent, a representative final good producer, a continuum of domestic monopolistic competitive ...
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How to deflate data from PPI
I have producer price index data. I have 4 products almond walnut pecan and peanuts, two of them start from 1991 almond and walnut (base year) another two from 1982 pecan and peanut. Does anyone know ...
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Why do fiscal policies only shift the IS curve?
We have been studying the IS-LM model in class, and while I understand how to derive these curves, I am struggling to understand what the model really represents. I am aware that the model implies an ...
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Why is the 'marginal productivity of a factor' of any relevance in the Cobb-Douglas production function?
I don't understand its importance in this production function.
I know that the productivity parameter is A in the function:
$F(K,L) = AK^α L^{(1-α)} $
So what could it be?
Thank you!
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GDP and Imports in the Keynesian Cross model and beyond
I understand that when calculating GDP by spending, Imports are subtracted because we can't distinguish between the domestic and the imported components of C, I, and G.
But in the Keynesian Cross ...
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The cantillon Effect asumes that money is not nutral right?
I am a austrian high school student and as a part of our final exams we have to write a small scintific paper. I decided to write about the Cantillon Effect and its implications and realised that ...
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Academic literature on effects of the digital divide on innovation
I work in research on both the digital divide and on the economics of innovation. Could someone please recommend some academic literature of the effects of the former on the latter?
To give you an ...
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Why does the price level matter if the real money supply is equivalent
In Ben Bernanke's Macroeconomics, in discussing approaches to dealing with recessions, he mentions three broad approaches:
Government does nothing: The price level eventually decreases, until ...
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Interpreting different versions of the aggregate demand and supply model
In Ben Bernanke's Macroeconomics, he explains the two major approaches to business cycle analysis in terms of the IS-LM & AD-AS model.
The Keynesian SRAS curve can be represented as a flat line — ...
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Why do we have money growth in the medium to long run?
Over the long run, why do we have money growth and inflation? There's two explanations I had in mind, wanted to know which one, if either, is correct
If we have expected inflation at 2%, then next ...
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