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Questions tagged [macroeconomics]

Macroeconomics is a branch of economics dealing with the aggregate economy as a whole, rather than individual markets.

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Differentiating through this integral in banking loans?

Working through the math which gives the following profit function for a bank but I can't seem to solve this first order condition. The profit function is defined as follows, \begin{equation} \pi_t = ...
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How can you find the government spending multiplier from a VAR?

I have done a VAR investigation of how a number of macroeconomic aggregates respond to a government spending shock. However, I can't seem to remember something as basic as how to find the government ...
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1answer
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Dot over a variable, Neoclassical growth model?

Looking at the Neoclassical growth model, I have hard time understanding what dot over a variable mean? I know it is short for taking the derivative with respect to time, I don't understand the ...
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How is labor demand measured?

For instance, in the introduction of this paper (first paragraph), talking about Figure 1, they say that labor demand is measured as the real wage bill normalized by population. Is it common to ...
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Linearisation of the IS curve?

How to the IS curve linearised around the structural equilibrium?, what is the math behind it?
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FOC and Log Linerizations

I was wondering whether anyone might be able to help me or at least push me in the right direction with this New Keynesian Model. I apparently have that the household function is as follows: ...
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National income referred as GDP?

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 ...
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How to derive optimal labour supply from utility? [on hold]

I am struggling with this question: An agent's utility is U = log(C) - 2L2 (where log(C) is the natural logarithm). The agent produces their own output with a production function C = Y = AL^α, where ...
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《Free to Choose》 many fields and methods of encouraging freedom and competition in the book ,why they are still rarely implemented today?

《Free to Choose》Book by Milton Friedman and Rose Friedman,has been published for almost 40 years. many fields and methods of encouraging freedom and competition in the book ,why they are still rarely ...
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Economic interpretation of a CES production function

I am following a paper where a production function of this type is used. $$Y=\left [\beta K^{- \rho}+\alpha \eta \left (\frac{K}{L} \right )^{-c(1+\rho)}L^{- \rho} \right ]^{-1/\rho}$$ It is a ...
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1answer
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What is a “modified IS-LM framework”?

Recently in a test I was asked to describe the modified IS-LM framework. I assumed I was being asked the IS-LM-BP model, since it modifies the traditional IS LM model by adding a BP curve. I looked ...
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Why bonds held by foreign investors is greater than total bond issued?

Total bond issued is reported by BIS debt securities data. Let BIS denote this amount. Bonds held by foreign investors is reported by Balance of payment statistics (IMF). It is the portfolio debt ...
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2answers
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Why did it take so much QE by the ECB to raise the Eurozone inflation to 2%?

From 2015 to 2018 the ECB increased the money supply by around 20% (around 6% y/y), with a GDP increase rate under 1%. Yet the inflation rate remained under 2%. A back-of-the-envelope calculation ...
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4answers
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On trade, What justificaion does the USA have to accuse China of 'selling too much not buying enough from USA'

There's a trade war (dispute) going on between USA and China, and it boils down to the USA accusing China of not buying enough American products, relative to what they sell to America. Putting aside ...
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Energy in production

Economists use labour and capital as the primary factors of production in income approach to output calcluation. Both labour and capital are reproducible factors. I can compute labour and capital cost ...
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3answers
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What are the advantages and disadvantages of the IS LM model?

How does the IS-LM model help economists in the day to day analysis of the economy? There are just too many assumptions that are not there in the real world.
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1answer
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Elasticity of substitution between leisure in two periods

This is a basic question, but I am new to macro models. The question is from Romer's text. Assume a household only has one member and has no initial wealth, and the household lives for two periods. ...
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1answer
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is there a way in NIPA accounts to see a measure of size/change in private debt stock?

is there a way in NIPA accounts to see a measure of size/change in private debt stock , and how is it measured? if not then how is it measured?
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Can central bank interest rate hikes lead to a price gain in equities?

I ran an empirical analysis on recent interest rate changes of European central banks on Swiss equity prices and found statistically significant results. A 1 percentage point increase in interest ...
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Bellman and Lagrange equation used at the same time

I just encounter a strange maximization problem in Sargent's Recursive Macroeconomic Theory book, when they have Bellman equation and Lagrange equation at the same time. Specifically: $P(v) = \max_{...
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where can i find monthly industrial production time series for china?

I'm looking for monthly Industrial production index for China. I can't find it anywhere. does anybody have a solution for this problem? It seems that IFS, world bank and china's statistics do not ...
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Chap 20 Sargent book (Limited Commitment model)

I am reading Chapter 20 (Insurance vs Incentive) in Sargent's Recursive Macroeconomics Theory. I don't understand this part on his book (on page 809, 3rd version). Why we know that the optimal ...
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1answer
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Bond prices and Trade deficit

Why does the narrowing of trade deficit cause an increase in bond prices? I do understand that narrowing of trade deficit leads to narrowing of capital account surplus. Also, investor confidence ...
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1answer
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Probability of history occurring at time $t$

I am reading LS book "Recursive Macroeconomics Theory". In this book, as well as in some online lecture notes on the Internet. They often denote, for example, $\pi_t(s^t)$ for probability that ...
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what are Investments (as defined in macroeconomics) that Households make?

i guess a) NEW house b) buying shares in a domestic company in an IPO c) investment in a personal business , eg taxi driver buying a NEW taxi, shop owner buying his shop or renovating it what about ...
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Cost-push inflation and labour shortage

Is it possible for there to be a shortage of labour in an economy when there is cost-push inflation?
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why isnt private sector savings defined as $S=Y-T-C-I$?

why isnt private sector savings defined as $S=Y-T-C-I$ ? afterall, savings is the money you have left over after you net off from your income ALL of what you have paid out. $Y, T , C$ And $I$ are the ...
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1answer
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exchange rate calculation

Suppose you have one U.S. dollar with which you wish to purchase U.K. (one-year) bonds in period t. Which of the following expressions represents the amount of U.K. pounds you will receive in one year ...
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1answer
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What data/factors/attributes do the professionals monitor in a top-down analysis on the macroeconomics?

I am learning to do top-down analysis on a number of sectors in the US equity markets. I have never done it before and I would appreciate it if some professionals can share their experiences with me. ...
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1answer
219 views

Simple Keynesian model

It is given that economy is at equilibrium at $ Y_0 $ = 1000. If Government undertakes a fiscal change so that tax rate $t$, increases by 0.05 and government spending increases by 50, will the budget ...
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1answer
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Central bank loss function

$$ L_t = \gamma(\pi_t - \pi_t^\otimes)^2 + \hat{Y}_t^2 $$ Central banks loss function is given by the equation above. This loss is increasing and convex in the distance from the inflation target, i.e....
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2answers
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Statistical distribution of wages and wealth

How are wages distributed globally? Wages do not follow a normal distribution, do they? Is wealth distributed in the same way or differently?
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2answers
361 views

What are the consequences of deflation in Japan?

Most of literature I can find about deflation in Japan takes for granted deflation is bad for the country. I can also find much literature on why deflation is bad on theory. Is there any analysis of ...
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What does it mean when a discount lender “rediscount[s] reserves”?

I was reading a wikipedia article about the evolution of global financial system: https://en.wikipedia.org/wiki/Global_financial_system#Interwar_period:_1915%E2%80%931944. In the passage about the ...
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Bank Runs During the 1930s

Why were there numerous banks run right after the stock market crash of 1929? Why would a bank fail because the stock market crashes?
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2answers
129 views

Is manufacturing automation really a bad thing for the economy?

Media loves to create a technophobia frenzy for automation and robots. Would REALLY automation in manufacturing cause the economy to collapse? Taking an extreme case that is impossible to happen ...
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1answer
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Keynesian Cross and Balanced Budget Multiplier

Hi! I am trying to understand the problem above, and was wondering if someone could help me with the last question. I think I am fine with all other questions. Here is my attempt: (i) The fiscal ...
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3answers
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How does raising interest rates calm inflation?

My understanding is that by raising interest rates, domestic CPI indices are less likely to rise signicantly. However, raising interest rates also attracts capital inflows and can create asset bubbles....
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1answer
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The reality of the multiplier effect

I was just reading my economics notes when I stumbled upon this paragraph: Singapore has a very open economy and imports most of its inputs and necessities, which means that MPM is likely to be ...
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1answer
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Short run Aggregate supply curve is horizontal or positively sloped?

I want to understand the adjustment process from Very short run production decision to Short run production decision to Long run production decision. As far as I've understood: consider an increase in ...
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1answer
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Accelerator and Multiplier effects at full employment

I have a question regarding the multiplier and accelerator effects. The way I see it, the value of the multiplier tends to be lower as the economy approaches full capacity. I would therefore expect ...
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1answer
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Why does capital initially reduce and then rise with an anticipated future decrease in taxes in the RCK model?

Consider the version of the RCK model where there is a government that runs a constant balanced budget. At $t_0$, the economy is in steady state, with constant tax $T_{old} > 0$ Then, at $...
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1answer
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Will an increase in interest rate cause short run aggregate supply to shift?

Most business borrow for financing their purchases of raw material and capital etc. Shouldn't a interest rate rise cause cost of production to increase, therefore shifting SRAS to left? Thanks in ...
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1answer
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Does open source software contribute to GDP?

Does open source software contribute to the GDP of a nation? If yes then how, and how does it depend on the increase in usage? For instance, would an increase in the usage of open source software ...
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2answers
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What will be the effect on velocity of money when demand for real money increases?

Suppose that a change in government regulations allows banks to start paying interest on checking accounts. The money stock is the sum of currency and demand deposits, including checking accounts. (...
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Money, Product and Bond Markets in Equilibrium

Why are we assured that when the money and product markets are in equilibrium, the bond market will also be in equilibrium?
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Is zero inflation desirable?

Is zero inflation really desirable? To be more precise: Does inflation in real life have benefits that in some situations outweigh its social cost? E.g.: it works as a disincentive against holding ...
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2answers
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What is the effect of expansionary fiscal policy in case liquidity trap situation?

I've read that liquidity trap means interest rate is at its minimum and increase in real money stock will not lead to fall in interest rate because people will be demanding whatever the amount is ...
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What happens if there is increased government deficit spending but not increased money supply?

What happens to real GDP if the government deficit spending is increased, but the Federal Reserve doesn't expand the money supply? Would the effect on real GDP be the same as if the Federal Reserve ...
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1answer
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DSGE Model Solutions as a Vector Time-Series process. Examples?

I'm trying to understand how the solutions of a DSGE model can be seen as VAR or VARMA. Can you give examples of DSGE model solutions which can be seen as such? Also, does this only happen when we ...