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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Leveraged Return on Investment

A general return on investment (ROI) formula is: \begin{equation} \text{ROI}=\frac{\text{Net Profit}}{\text{Total Investment}}. \end{equation} But if you think about an investment that requires some ...
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Production technology and efficiency

I have been practicing some questions on production function and efficiency and I came across the following questions. For question 1 what I did is, the efficiency of firm A in q1 = production of ...
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Gross interest rate ($R$) v. Net interest rate ($R-1$)

I am reading a macro-finance article that deals with asset financing. While it defines the gross interest rate to be $R$, it defines the net interest rate to be $r\equiv R-1$. In equilibrium, the ...
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Why do prices go up when the central bank increases money supply?

From my understanding, when the money supply curve shifts to the right, interest rates go down, it follows that the price level decreases and the prices should go down? Thanks in advance.
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The economics of a “no deal” Brexit

A "no deal" Brexit is presented in negative terms. In such a scenario the UK would set tariff schedules in line with trade strategy and protect domestic industry/agriculture with tariff rate quotas. ...
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Quantity theory of money

Suppose the velocity of circulation (V) is constant. Annual growth rate of real GDP is 5%. The money supply grows by 14% per year. Use the quantity theory of money to calculate the inflation rate. My ...
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Nominal and real government expenditure

I just need to know that how to make a data series of real government expenditures using nominal government expenditure data series.
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How can capitalism be improved? [on hold]

Many people want to try socialism because of valid criticisms of capitalism. So, are there any good ideas on improving the problems of capitalism before we go down the path of socialism?
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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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How should the government react to 50% of the population being wiped out?

In Avengers Infinity Wars the villain snaps his fingers and wipes out 50% of all living creatures. His rationale is that it will save people from starvation and collapse due to resource exhaustion in ...
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Greek Debt Crisis

If the Greek government defaults on its bonds issued by French and German investment banks, how does that prevent the French and German governments from paying back the money that they owe to ...
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Upper bound on wealth that can be created for each country

I get very confused on the subject of wealth and I do not, I repeat, I do not have the time to read Adam Smith. And I have no formal training in economics. As a layman, I wish to ask a simple question....
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In what kind of economic environment would the cliche of “keeping money under the mattress” be warranted?

I'm trying to apply (ideally empirical-backed) economic theory to an age-old cliche. We must be very articulate about the assumptions, because if it's a total collapse of the dollar, then that ...
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Would a perishable currency work in a financial crisis today?

I read about perishable currencies in the following article Now my question is if there have been any studies on this and if this may work in modern financial markets?
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Are there economic models that predict (only) a medium/long-term negative effect of protectionism?

Going by some ECB models/estimates from last year, protectionism would result in negative consequences pretty fast, e.g. For illustration, I will use the results of simulations carried out by ECB ...
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What is the equilibrium income (b) calculate trade balance (c) what is the value of foreign trade multiplier

An economy is characterized by the following equations c=60+.9y^d . I=10. G=10. t = 0 . x=20 . m=10+ .05y
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Is the concept of limited liability in corporate law beneficial to economy

The concept of limited liability in corporate law is widespread all over the world. Limited liability means, that owners of a company can only loose their capital invested into the company - the ...
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Need help to solve this task(calculus)ASAP [closed]

Tasks: 1) A firm has MR(x)=3x and MC=AC(x)=(1/3)x^2. Find the profit obtained by the firm for production level between the starting point and the point when MC(x)=MR(x). 2)A firm has marginal ...
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What is low unemployment and low gdp growth symptomatic of?

Obviously there are caveats with GDP, if you build a bridge to nowhere it counts as GDP, but if you mow your own lawn or volunteer to pick up garbage it doesn't count, and so forth and so on. However, ...
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Why doesn't the trade balance equation take into account the value of products sold by the U.S.?

$$NX ≡ (S-I) + (T-G)$$ Read this as “the trade balance (net exports) is identical to the sum of net savings (savings minus investment) and the government’s budget surplus or deficit (taxes minus ...
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What are the risks of investing with Etoro?

I have seen advertisements on Etoro on YouTube a couple of times. It advertises itself as a trading platform that allows you to copy the investment behavior of professional investors, supposedly to ...
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Purchasing power of currency abroad

Say you have two countries A and B. Suppose we have a situation where country A's currency can purchase much more in country B than the other way round. What causes this phenomenen? Is it possible ...
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Does migration exacerbate (albeit delay) the problem of aging, economically-inactive populations in Western societies?

As a layman, I've always understood that there is a general consensus amongst economists that "immigration is economically beneficial" to rich Western countries (like Britain) who have aging ...
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Difference between shocks, innovations and disturbances

In macroeconomics and macroeconomic models, shocks, innovations, and disturbances are very prominent and often mentioned in the literature. In general, is there a difference between macroeconomic ...
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How does investment have a negative impact on the current account (trade balance)?

NX ≡ (S-I) + (T-G) Read this as “the trade balance (net exports) is identical to the sum of net savings (savings minus investment) and the government’s ...
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Why does inequality fall in recession in business cycles in first world nations [closed]

See title. Why does inequality always fall in recessions? For example, every recession. Is this a problem for Liberal ideology? See title
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Does diminishing government spending lead to a reduction in trade deficit?

NX ≡ (S-I) + (T-G) Read this as “the trade balance (net exports) is identical to the sum of net savings (savings minus investment) and the government’s budget surplus or deficit (taxes minus ...
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Has there been an applications of search and matching theory in the Neoclassical Growth Model?

Specifically, I am looking for the standard neoclassical growth model, but the labour decision is based on either search or matching theory instead of a Walrasian labour mechanism.
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Typical Growth Model Social Planner Problem

Consider the following social planner's problem, hand-waving the usual assumptions on the preference, technology, endowment, and inelastic supply of labor: $V(k_o^*)= max_{\{c_t,k_{t+1}\}_{t=0}^{\...
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What is unknown in Bellman Equation?

\begin{align} V(W)=\max\limits_{W'\in[0,W]}\qquad& u(W-W')+\beta V(W')\qquad\forall W \end{align} $\textbf{My Question}$: Why is the unknown in the Bellman equation $V(W)$ itself? Isn't the ...
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Can anyone give me some reference on Mundell-Fleming model estimated empirically?

In virtually all texts of intermediate Macroeconomics$^1$ the Mundell-Fleming model is taught. But his estimate is not addressed in the classical texts of econometrics. I've always wanted to read some ...
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Remittance: Migrant workers sending money to their families

I wonder about the role of migrant workers in a general economic context. Migrant working appears all over the world and on many time and space scales: around cities (e.g. commuters) inside ...
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Optimal fiscal transfer rate

I'm aware of the theory of optimal currency areas, and that both the Euro and the US dollar* are technically not optimal. This would tend to cause their optimal monetary policy to diverge over time. ...
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discount factor, function, and rate

Consider an exponential discount factor $\delta\in(0,1)$. Similarly, consider an exponential discount $\textit{function}$: $g(t)=\delta^t$. Then, is defining the discount $\textit{rate}$ as below a ...
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Does scarcity apply only to commodities?

I feel like Wikipedia may be misleading me in a subtle or egregious way. The very first line of Scarcity is: "Scarcity is the limited availability of a commodity..." It does, of course, helpfully ...
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Dixit Stiglitz price index FOC?

In the solution to the problem below provided by my professor he applies a first order condition to the lagrangian for ct, getting pt for the partial derivative of the argument "$\frac{d}{dc_t(t)} \...
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Growth Model Choices

In a typical macro growth model, a set-up usually concerns with the following trade-offs or choices to be made in each $t$: (1) $c_t$ v. $c_{t+1}$, consumption today versus tomorrow. (2) $c_t$ v. $1-...
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Stokey, Lucas (1989) p 11 FOC

My Lagrangian is: $L=\sum\limits_{t=0}^T \beta^tU(f(k_t)-k_{t+1})+\sum\limits_{t=0}^T\lambda_t(f(k_t)-k_{t+1}).$ My FOC for $[k_{t+1}]$ is: $\beta^tU'(f(k_t)-k_{t_1}^*)(-1)-\lambda_t^*+\beta^{t+1}U'...
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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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Measure of New Firms Born in Each Period

In an economy with stochastic overlapping generations of firms, how do we easily understand the measure of new firms born? The set-up states: "In each period, measure $\rho\in(0,1)$ of new firms are ...
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Puzzle: Fairness of consumer price indices

I have learned a bit how the consumer price index (= inflation rate) in Germany is calculated. It's a complex process, which takes into account a lot of measured values (mainly specific prices for ...
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Why is an inflation rate of 2% optimal? [duplicate]

Learning from different sources I got the impression that the European Central Bank targets at a inflation rate of 2% (not sure along which time scale actually). Can it be explained by general ...
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Why people respond to surveys like that of Purchasing Managers' Index?

A lot of data, including indexes, rely on surveys. For example, Purchasing Managers' Index. (1) Why people answer these surveys (is there any benefit)? (2) How to make sure the data is correct? What ...
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Real Business Cycle model and demand shock

Suppose there is an increase in demand in a real business cycle set-up. Since aggregate supply is fixed and prices are fully flexible, won't that leave output unchanged as prices adjust to clear the ...
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Is there any mainstream criticism of the Benes-Kumhof conclusion that the Chicago Plan would improve the US economy nowadays?

A 2012 IMF Working paper by Benes and Kumhof "The Chicago Plan Revisited " has this abstract, finding in favor of the Chicago Plan an all counts basically: At the height of the Great Depression a ...
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The law of supply and demand - How does it work?

I've learned what the principle of supply and demand says, and would paraphrase it like this: The price of a good is at equilibrium when supply and demand are equal. Or with other words: The ...
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Is the New Keynesian Phillips Curve a supply curve?

In New Keynesian models, the Phillips curve typically takes the form: $\pi_t=\beta E_t(\pi_{t+1})+\kappa y_t$ Here, $\pi_t$ refers to inflation in period $t$, and $y_t$ refers to output. Would it ...
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The TYPICAL law of motion of capital

Consider a typical macro firm set-up where the capital can be produced from output goods using a linear technology. It costs some X units of output good to make a unit of the capital, and the capital ...
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How important are capital requirements for controlling broad money supply?

Interestingly, the Bank of England (BoE) is one of the few central banks that does not have reserve requirements. Canada, the UK, New Zealand, Australia, Sweden and Hong Kong have no reserve ...
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what was the world's wealth in 2015?

I was reading an article from 2015 stating that 1% of the world has half of the world wealth. They have several figures such as the world's billionaries have around 7 trillions dollars or the global ...