# All Questions

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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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### How can I obtain Leontief and Cobb-Douglas production function from CES function?

In most Microeconomics textbooks it is mentioned that the Constant Elasticity of Substitution (CES) production function, $$Q=\gamma[a K^{-\rho} +(1-a) L^{-\rho} ]^{-\frac{1}{\rho}}$$ (where the ...
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### What is the economic purpose of increasing the minimum wage?

It is generally accepted among economists that minimum wage warps the equilibrium point between the supply and demand of labor by instituting a price floor and increases unemployment for unskilled ...
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### Implications of abolishing Fractional Reserve Banking on mortgages and interest rates

Suppose for a moment that someone with legislative power decides to abolish Fractional Reserve Banking and passes a law that forces banks to only lend the money they own, that is M0. What would be the ...
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25k views

### Fundamental equations in economics

For the other sciences it´s easy to point to the most important equations that ground the discipline. If I want to explain Economics to a physicist say, what are considered to be the most important ...
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### How do economies grow?

These days, we hear again and again about the so-called "need" for economic growth. But how do countries actually grow economically? That is, why/how does their GDP increase over time? ...
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### Does GDP count both the investment and the house rental?

Suppose you bought a new house in the year of 2010. Then the price of the house in counted toward the 2010 GDP. Say then you live in the new house in the following years. So in these years, the GDP ...
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1 vote
645 views

### Is it possible that the minimum point of a short run cost curve does not touch the long run cost curve?

In the answer to this question, the answerer said "the minimum point of a short run cost curve will be above the long run cost curve". Is it true? If so, how would it be so? I thought that if e.g. ...
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309 views

### What amount of Quantitative Easing will cause hyperinflation?

You all know that Quantitative Easing shifts the LM and AD curves right, so I haven't taken the time to redraw this picture. What's the maximum amount of Quantitative Easing that the Federal Reserve ...
2k views

### Who exactly foots the bill if Greece defaults

Apologies if the topic is not appropriate (economics newbie here) but I am curious as to who exactly would foot the bill if Greece defaults on the ~300 billion dollars it owes. It looks like most of ...
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975 views

### Destroying the dollar

Let's destroy the USD dollar: I am the government of a small, economically and geopolitically unimportant country that has its own currency and a local central bank. I order the local central bank (at ...
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### What is a substitute/complement in terms of mixed partial derivatives?

I am trying to understand how substitutability relates to mixed partial derivatives. I thought the change in marginal utility with respect to a change in the amount of $x$ would correspond to \frac{\...
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### What is the definition of exogenous and endogenous preferences?

Wikipedia states: Exogenous Preference -- one that comes from outside the model and is unexplained by the model. Endogenous Preference -- preferences then cannot be taken as given, but are affected ...
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When trying maximize the utility having a cobb-douglas utility function $u=x_1^ax_2^b$, with $a+b = 1$, I found the following formulas (Wikipedia: Marshallian Demand): $x_1 = \frac{am}{p_1}\\ x_2 = \... • 245 11 votes 2 answers 959 views ### Can the Machina Paradox be solved by expanding the choice set? In another question, the Machina paradox is mentioned as a possible counterexample to the expected utility model: Adding to the list of paradoxes, consider Machina's paradox. It is described in Mas-... • 9,295 11 votes 2 answers 465 views ### The Case for Basic Income in developed and underdeveloped countries From what I can tell, the idea of the basic income guarantee is very popular in some circles as an excellent alternative to a lot of modern welfare systems. Has anybody developed a theoretic or ... • 3,761 11 votes 2 answers 1k views ### Inflation and economic growth Noticeable works about the impact of inflation on economic growth are dated back to the 90s. For example, Barro (1995): the impact effects from an increase in average inflation by 10 percentage ... • 1,587 9 votes 2 answers 605 views ### Ricardo's theory of comparative advantage The aim of this question is to better explore the mathematical economics model behind Ricardo's theory of comparative advantage and the claims that can be made based on this model. This seems ... • 28k 8 votes 2 answers 42k views ### How to derive firm's cost function from production function? I recently learned how to solve the following type of problem using the method of Lagrangian multipliers: Given a consumer with utility function$u(x,y)$, wealth$w$, prices$p =(p_x,p_y)$, budget ... • 3,444 8 votes 3 answers 337 views ### How does a central bank create the money used for quantitative easing or lowering the value of their currency? Up until last week, the Swiss central bank used Francs to buy Euros, in an effort to lower the value of the Franc; today the European central bank announced that it would use Euros to buy bonds in ... • 253 7 votes 5 answers 1k views ### How is the interest on fractional reserve money creation paid? In fractional reserve banking commercial banks create money when they make loans. When these loans are paid back the account is zeroed, the created money disappears, but the bank is still entitled ... • 181 7 votes 2 answers 11k views ### Consumer surplus in case of perfectly inelastic demand How do we define consumer surplus in the case of perfectly inelastic demand? This question was inspired by the comments following this answer. For a graph of inelastic demand please also see the ... • 28k 5 votes 2 answers 1k views ### Why is modest inflation a good thing? [duplicate] I have been reading a BBC news article about inflation in the UK, which is saying that inflation has recently become negative (http://www.bbc.co.uk/news/business-33147660). The article suggests that ... • 255 4 votes 6 answers 568 views ### Have automation and technological advance been shown to have a positive impact on society and the economy or a negative one? My friends and I, 2 of which are computer science majors think it is worse because is humans can't work and thus afford necessities, how will they survive? The definition of automation: the use of ... • 1,341 3 votes 3 answers 4k views ### What is Opportunity Cost? Suppose you have 2 activities, A and B. Doing activity A gives a return of 100 dollars, doing activity B gives a return of -50 dollars. What would be the opportunity cost of choosing activity B? 100 ... • 31 2 votes 2 answers 144 views ### How is the Corona$2 trilion stimulus package going to be financed?

Perhaps this is a simple question but as a non-US citizen I don't understand how the US government is going to finance the \$2 trillion stimulus package to combat the economic damage due to the Corona ...
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