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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Real world application of IS-LM model

I learnt IS-LM model but I got curious whether it is applicable to the real world. I mean it's just an model, so I doubt that the realtionship between Y and r actually exists. Are there any real life ...
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Raising interest rates to prevent inflation

I am reading a book about the Mundell-Fleming Model and I have encountered a part which says: The Fed raised U.S. interest rates several times during 1994 to prevent U.S. inflation. Isn't it the ...
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Is $y$ always output per person in DSGE/RBC models?

As title says, is $y$ output per person in DSGE/RBC model? If so, why did macroeconomics decide not using Solow/Cobb-Douglas style of using full labor to characterize economy? Model reference: http://...
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Which capital accumulation is right? $K_t = (1-\delta)K_{t-1} +I_t$ or $K_t = (1-\delta)K_{t-1}+I_{t-1}$?

In a lot of models with capital, I find different variants of capital accumulation formula as follows: $K_t = (1-\delta)K_{t-1} +I_t$ or $K_t = (1-\delta)K_{t-1}+I_{t-1}$ Which one is more ...
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Who regulates the balancing of the books for commercial banks? How? Is it public information?

I've just read Money Creation in the Modern Economy, an article published by the Bank of England. This article brings about a lot of questions in my mind. This article talks about money being created ...
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How is monetary policy fair in the current economy? [closed]

I've just read Money Creation in the Modern Economy, an article published by the Bank of England. This article brings about a lot of questions in my mind. This article talks about money being created ...
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2answers
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Does aggregate demand increase investments?

I just read that increase in aggregate demand increases investment for a given interest rate. How is it possible because when aggregate demand increases, this shifts the demand for money to the right ...
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How is monetary policy sustainable, or even fair, in the current economy? [closed]

I've just read Money Creation in the Modern Economy, an article published by the Bank of England. I'm trying to wrap my head around this from multiple points of view, since it brings about a lot of ...
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Calibration of utility function parameters controlling labor disutility

Consider the very basic utility function $$ u(c, n) = \log (c) - \alpha \frac{n^{1 + \frac{1}{\nu}}}{1 + \frac{1}{\nu}}$$ Where $c$ is consumption and $n$ is working hours. As the Frisch elasticity ...
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Secular Stagnation: A Plain-English Explanation

Put aside the mathematics and jargon for a couple minutes. If you had to explain the concept of secular stagnation to an (intelligent) person with no economics background, how would you go about doing ...
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How did 'crisis' spread through the financial system in '07-'08?

How did 'crisis' spread through the financial system in '07-'08? Specifically, what is the process by which a subprime mortgage impacts the health of the credit markets as a whole? An explanation in ...
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Why did the proportion of household savings in the USSR decrease during its transition period?

This question came out as a multiple-choice in my A-Level Economics exam. The answer choices were: A) Rising income inequality B) Increased availability of consumer goods C) Rising medical expenses ...
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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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Solow-Swan production function- What is '$L$'

If $L$ represents the amount of labour in the Solow-Swan production function: $Y/L$=$f(K/L)$ how can $Y/L$ equal 'per-capita income' if $K/L$ is the capital/labour ratio? I thought per-capita ...
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Multiplier in the two-sector Keynesian model

Which of the following is most likely to reduce the size of the multiplier in the simple (2-sector) Keynesian model? Increased taxes on savings Reduced access to government funded medical care ...
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Calculating nominal GDP

I would like to understand one detail of how nominal GDP of a country in a given year is calculated. It seems to me that the GDP in each country is first calculated in the national currency and then ...
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Is 'full employment' synonymous with 'the natural rate of unemployment'?

Is the phrase 'full employment' synonymous with the phrase 'the natural rate of unemployment'? Parkin, et al. (2010) seem to use these two terms interchangably in chapter 20, but looking up these two ...
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Who enjoys the Net Domestic Product?

Suppose the Net Domestic Product in a certain sector (e.g. agriculture) is 10 billion. Who enjoys this 10 billion? Initially, I thought that this 10 billion is the gross income of the farmers. So ...
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Calculate GDP by three different methods

I have the following question to answer in my macroeconomics textbook. Steel producer makes steel worth 4000 out of which 0.25 is sold to machines producer and 0.75 of steel is being sold to the car ...
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Hot Topics in Labor-Macro

I'm interested in currently hot research topics within Labor Macro. I'm only aware of the debate on the recent shift in the US Beveridge curve, and, of course, the olden but golden Shimer puzzle. ...
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Reactions of the Money Market

Here's the image of a money market with two different money supply and demand curves: Here are some questions regarding money market reactions. I'll always write my proposed reasoning underneath each ...
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Why can't price level be negatively correlated with money demand?

Source: p 585, Economics, 3 Ed, 2014, by NG Mankiw, MP Taylor Although many variables affect the demand for money, one variable stands out in importance: the average level of prices in the ...
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How does inflation in income go 'hand in hand with inflation in prices'?

Source: p 594, Economics, 3 Ed, 2014, by N G Mankiw, M P Taylor Yet further thought reveals a fallacy in this answer. When prices rise, buyers of goods and services pay more for what they buy. At ...
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Yield and interest rate?

Are they the same thing? Is yield the annualized return rate? Why when yield rise, yearly return increases but price falls?
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How to calculate GDP increase using Cobb-Douglas production function?

I use this economics stack exchange for the first time. I have a question regarding the Cobb-Douglas production function. The question is this: GDP in an economy is growing at 3% a year in real terms. ...
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1answer
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Calculating the cost of a year without land-tilling

The motivation to this question is the Biblical commandment of Sabbatical year, in which the land should be allowed to rest and should not be cultivated. I am trying to estimate how much would it cost ...
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Intuition behind the positive slope of LM curve : 'Income must increase'?

Source: by John Floyd PhD (in Economics; U Chicago) The intuition behind the positive slope of LM is as follows: An increase in the interest rate reduces the demand for money and an increase ...
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Should Finland leave the eurozone?

Finland's economic recovery from the shock of the global financial crisis of 2007–2008 has been very weak. The country has been in recession for the past three years, with GDP expected to expand by ...
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What are some reasons for decline of georgism?

I understand that Georgism was a major economic idea in the late 19th century. The idea of a simple land-value tax and basic income derived from an equitable distribution of natural resource ...
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Is it possible to eliminate the U.S. national debt?

A political science teacher of mine has said that the U.S. national debt has grown way beyond reach and is now just a political talking point with no real value. He says that there is no point in ...
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Will the goods market be in equilbrium along the AD curve?

This is a question which was asked in the entrance to Jawaharlal Nehru University's (New Delhi) entrance for their post-grad program specializing in International Economics in 2014. Which of the ...
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What is some intermediate or advanced macroeconomics textbook use general approach and focus on general topics?

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 ...
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How to calculate equilibrium income given a certain level of unemployment? [closed]

I need help with this question. I do know the procedure to calculate the equilibrium income and can solve the following question without taking the employment factors in mind. However, I just can't ...
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1answer
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Labour Productivity Growth and Reallocation of Labour

Using a shift-share methodology, labour productivity growth can be arise from productvity growth within a sector (within effect) or reallocation of labour to sectors with higher productivity (...
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Larry Summers on the causes of secular stagnation

In an influential speech on November 8, 2013 at the IMF Annual Research Conference, Larry Summers suggested that slow economic growth in the years following the 2007–2008 financial crisis might be due ...
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Capital in a credit frictions model

I won't go into detail of this model because it's really just one point that i'm confused about. This question is based on a model by Matsuyama (2007). Agents are deciding whether to invest in a ...
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How do saving and investment work in macroeconomics?

It is stated that saving equals investment. However, suppose the interest rate rises and people save more. However, businesses will borrow less so investment decreases. Hence investment is less than ...
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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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Stagflation and the Labor Force

Which of the following best explains how an economy can experience stagflation. Women and teenagers stayed out of the labor force. Negative supply shock cause the factor prices to increase. Official ...
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An increase in Japan's demand for US goods would cause the value of dollar to appreciate?

An increase in Japan's demand for US goods would cause the value of dollar to appreciate? Why is that? The official answer is "Japan will buy more U.S. dollars." However, my thought was that isn't it ...
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AS-LM Model and derivation of the LM curve

When we derive the LM curve, we assume that supply of money is exogenous. However, let's say the central bank has some target interest,r1, and it adjust supply of money to keep interest rates equals ...
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Divergence of a variable in forward-looking models. Blanchard-Khan conditions

(1) This post is, first, regarding the issue from Romer's Advanced Macroeconomics, 4 ed. Chapter 6.4 on nominal rigidity, pp. 264-266 to be precise. He sets out a simple model with microfounded IS ...
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What would be the GDP of Algeria without Oil & Gas?

Facts : *Algeria's GDP is 230 B$, *Oil & Gas account for 30% (70 B$) My simplistic reasoning would say : Substract 70 from 230 and get a new GDP of 160 B$. ...
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Causes of income inequality in the US

I read an article in BusinessWeek that talked about income inequality in the US. The article attributed the difference to the Intel chip that came in 1971. Since that time big hi-tech companies have ...
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Reject worker after match

In the DMP family of labor models, we typically have $V$ denoting a vacancy and $J$ denoting the value of a job. $V$ typically becomes 0 through free entry. Say a firm get matched with a worker of ...
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Influence of a TTIP on the GDP of a european country

So my question is simple but what I would like to know is if my method of calculating something like that plausible or not. So it goes like this : the formula we took at lecture for calculating is ...
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Intertemporal Model Macroeconomics

Basically, I have the full intertemporal model (the two period model) with the consumer, firm, and government, complete with the investment. And there is this question: Determine an equilibrium path ...
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What are the consequences of government spending by imposing tax?

The question is "If the government of country Z increases spending by \$12 million dollars and raises tax collections by the same amount, then what will be the overall impact of theses moves on real ...
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Shifts in demand curves

When plotting a demand curve for a good, lets say carrots with price on the y-axis and quantity demanded on the x-axis. A shift any determinant of demand other than price of carrots results in a shift ...
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How does a cash deposit change the M1 measure of the money supply?

The question asks what is the immediate effect of the cash deposit on the M1 measure of money supply. The official answer is "There is no change in the M1 measure of the money supply. (Demand deposits ...

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