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26
votes
6answers
4k views

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 ...
22
votes
2answers
29k views

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 ...
37
votes
11answers
7k views

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 ...
15
votes
5answers
2k views

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 ...
67
votes
13answers
20k 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 ...
16
votes
5answers
4k views

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? ...
11
votes
2answers
2k views

What is the Gross Domestic Product (GDP)?

I suppose GDP is supposed to create a measure of a country's wealth/welfare, something easily indexable. But how exactly is it composed? And is its composition disputed? How good is it at measuring a ...
108
votes
16answers
19k views

How will non-rich citizens make a living if jobs keep getting replaced by robots and are outsourced?

Decades ago a factory job could support a wife and kids until retirement and they offered insurance, benefits, etc. Now, no more unions, those jobs as well as tech and customer service jobs are ...
9
votes
7answers
4k views

Mathematical Micro/Macro Economics Textbook Recommendation

I was formerly an economics major and now also majoring in mathematics. I want a textbook that is rigorously based on mathematics; not just using mathematics whenever the author wants, but in a more ...
6
votes
1answer
259 views

Will a Guaranteed minimum income not eventually just be crowded out by inflation?

That is, if we implement a guaranteed minimum income, would inflation not eventually rise to a point where it is essentially useless? I would expect prices to be adjusted knowing people have a certain ...
5
votes
3answers
1k views

Price Elasticity of Demand for Positive Price Increases

What does it mean when the price elasticity of demand %Qd/%P is greater than one? Typically I hear that it means the demand is elastic since if, say, the price decreases by 1% the demand for the ...
11
votes
5answers
6k views

Productivity vs real earnings in the US — what happened ca 1974?

Somewhat related to the most recent US elections, I've been researching the whole "white working class" situation, and one strange anomaly has popped up. When one looks at a graph of productivity (...
8
votes
2answers
2k views

What would happen if the world switched to a single currency?

What would happen if all countries suddenly stopped using local currencies and adopted a global currency (like the Euro, but for everyone)?
27
votes
4answers
3k views

From an economics perspective, what are the ramifications of a currency with fixed money supply?

I'm thinking specifically of bitcoins. What are the pros and cons of having a fixed number of coins, as opposed to more "normal" currencies? Would the currency have no inflation?
6
votes
1answer
859 views

Interest rate parity: Counter intuitive

What is the basis for interest rate parity to hold? I know, the reason stated is excess returns Excess returns as such should not be the reason for a currency depreciation. for e.g. when we posit ...
17
votes
6answers
589 views

Experiments contradicting the expected utility model

This is a question I asked on the cognitive science beta which never got any answer there. I do not know what the policy should be for question migration/reposting (maybe worth discussing in the meta?)...
4
votes
1answer
535 views

Optimization problem with Kuhn-Tucker conditions

Consider a game with two players where each player $i=1,2$ has preferences $u_i=s_i^a c_i^{1−a}$, where $c_i$ is consumption and $s_i$ is social interaction. $s_i$ is given by $s_i=t_i+t_{ij}\times t_{...
6
votes
2answers
1k views

Elasticity of demand equals -1 but income decreases!

In my textbook, it's stated that: When $\epsilon < -1$, demand is elastic and raising price will result in smaller income, while lowering price will result in bigger income. When $\epsilon =...
38
votes
7answers
3k views

Seminal papers that later were proven to contain errors

I was reading on institutions, and I came across Acemoglu, Johnson and Robinson (AJR) paper on The Colonial Origins of comparative development: An Empirical Investigation, and this paper seemed so '...
14
votes
3answers
710 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 ...
7
votes
2answers
494 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 ...
11
votes
2answers
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 ...
7
votes
3answers
246 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 ...
11
votes
1answer
411 views

Are there fundamental reasons why (exponential) economic growth is highly desirable?

One of the most widely published measures of the economy is the economic growth as a % of the GDP; i.e. the degree to which an economy grows exponentially. In my understanding, when the rate of ...
11
votes
2answers
425 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 ...
10
votes
2answers
30k views

Marshallian Demand for Cobb-Douglas

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 = \...
9
votes
1answer
466 views

Why hasn't Quantitative Easing surged inflation, or caused hyperinflation?

Quantitative Easing (QE) is the buying of bonds and other financial assets by the Central Bank with high-powered money, or money created by the CB for this purpose. Isn't this ad-hoc creation of ...
23
votes
6answers
1k 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 ...
20
votes
5answers
3k views

Where to start learning economics as a mathematician?

I study pure mathematics at university and I'm looking to get into economics, with pretty much no background knowledge about it. Are there good sources to learn from with a decent mathematical ...
6
votes
5answers
2k views

Book recommendations on empirical methods in economic research and econometrics?

This question is more so geared toward anyone with research experience within economics, though of course, anyone is welcome to respond. I'm an undergraduate math major with a minor in economics. I'...
10
votes
5answers
1k views

What are the arguments against the rational expectations hypothesis?

I believe the rational expectations hypothesis says that agents in a model bear expectations that are the same as mathematical expectations. Under what circumstances does this hypothesis become ...
7
votes
5answers
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 ...
12
votes
4answers
9k views

Is complex analysis used in economics?

It's frequently useful in physics and engineering applications; are there any applications in theoretical economics? (If not, were there any attempts at incorporating CA that just never caught on?) ...
6
votes
4answers
13k views

Nash equilibrium of a Bertrand game with different marginal costs

Consider the following game of Bertrand (price competition): There are two players, $1$ and $2$. Each has a publicly known marginal cost, $c_i$. A strategy is a price, $p_i\in\mathbb{R}$. Player $i$'...
13
votes
7answers
3k views

Textbook for macroeconomics (advanced undergrad)

I find that many contemporary macroeconomics textbooks are too applied, filled with examples, case studies and intuitive illustrations, often at the expense of quantitative rigour and therefore the ...
12
votes
2answers
2k views

What is the difference between “aggregation” and a “representative agent?”

What is the difference between "aggregation" and a "representative agent?" I'm sorry if I'm not entirely clear on this question, but that's why I ask. It seems to me as if a representative agent is ...
10
votes
2answers
17k views

Lexicographic preference relation cannot be represented by a utility function

I am stuck on the following exercise, related to preference relations and von-Neumann-Morgenstern utility function. A farmer wants to dig a well in a square field $[0,1000]\times[0,1000]$. The ...
9
votes
7answers
4k views

What are the known / alleged problems against using energy as currency?

What are the known (and alleged) problems of using Joules (i.e. a measure of energy/work) as a currency? I tried to find such idea in Google (searched terms like "technocracy", since someone told me ...
8
votes
5answers
23k views

Why are imports subtracted from GDP?

GDP is a measure of a country's production. $$GDP = C + I + G + X_n$$ $C$ = Consumer Consumption $I$ = Gross Investment $G$ = Government Expenditures $X_n$ = Exports - Imports Exports are what we ...
12
votes
4answers
76k views

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 ...
10
votes
2answers
9k views

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{\...
5
votes
1answer
7k views

How is wealth created? [duplicate]

The production of 'goods and services' and 'innovation' is the usual answer. I feel that doesn't really answer the question. These things can be traded for wealth but they don't generate new wealth. ...
5
votes
1answer
906 views

Are there data for the evolution of global economic inequality

Please excuse my ignorance of economics. I recently learned about the Gini-Coefficient as a measure of the economic inequality in a country. I have since seen several plots of this coefficient over ...
5
votes
5answers
742 views

Why (neoclassical) economic models have no profits, unlike the real world?

Consider a simple neoclassical model of an economy populated by firms with a constant returns to scale production function, using homogeneous labour and capital. Firms are equal, and are price takers ...
5
votes
2answers
375 views

How do we estimate production functions?

In a standard economics education we learn about production functions, indicating an output as a function of a given input of capital and labour. An average model looks like this: (1) $F(L,K)=L^{...
10
votes
3answers
2k views

Can the stock market show indefinite exponential growth?

In a comments on a question on money.SE, the following dialog took place: Eventually there will not be enough matter to represent all the money, so we know for certain that the answer is "No" for a ...
8
votes
2answers
1k views

What is the necessity of the FDIC in the US banking system?

A bank's basic function is to "borrow short and lend long". In other words, it borrows money from depositors over the short term, promising to repay it on demand, while it lends most of that money out ...
8
votes
1answer
13k views

Finding demand function given a utility min(x,y) function

I am confused about a particular point regarding finding a demand function. All the problems in this practice set I am doing have involved applying the method of Lagrangian multipliers. But I am ...
7
votes
2answers
5k views

Imperfect vs incomplete information

What's the difference? To illustrate, please give examples of A game with perfect but incomplete information; and A game with complete but imperfect information. Related.
7
votes
2answers
384 views

Why is the inverted yield curve a good predictor of impending economic recession?

The inverted yield curve has often been cited as a good predictor of impending economic recession. What are the reasons to explain why is it a good predictor? Is the inverted yield curve a cause or ...

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