All Questions
1,059
questions
45
votes
7
answers
7k
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 ...
- 28.1k
31
votes
2
answers
39k
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 ...
- 723
44
votes
11
answers
8k
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 ...
- 2,868
17
votes
5
answers
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 ...
- 371
73
votes
13
answers
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 ...
- 2,769
19
votes
5
answers
5k
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?
...
- 10.6k
7
votes
2
answers
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 =...
114
votes
16
answers
20k
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 ...
- 1,341
12
votes
2
answers
3k
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 ...
- 10.6k
3
votes
2
answers
8k
views
Why is the short run average cost curve not a tangent to the long run average cost curve at the lowest point on the short run average cost curve?
The diagram from the Varian textbook shows that the SRAC curve is tangent to the LRAC curve at a point which is not the bottom of the SRAC curve. It would be really helpful if someone could explain ...
- 33
3
votes
4
answers
541
views
Who controls money supply if the fed does not?
This whitepaper states (bold mine):
According to the consensus view, the two leading culprits of inflation
risk today are the fiscal deficit and the money supply. To illustrate,
take this CNBC ...
- 133
50
votes
10
answers
4k
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 '...
- 5,051
17
votes
6
answers
12k
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 (...
- 346
10
votes
1
answer
358
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 ...
- 203
10
votes
3
answers
5k
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 ...
user13736
9
votes
7
answers
6k
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 ...
- 193
8
votes
2
answers
445
views
The Printing of Money for Paying Debt
I know that printing money causes inflation, but what if we print it to pay back our debts?
For example, we have N dollars of debt to China. We can just print the N dollars and give it to China.
...
- 83
4
votes
3
answers
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 ...
- 43
2
votes
1
answer
2k
views
When action and strategy differ in game theory
It looks like in a static, simultaneous move game, action is used interchangeably with strategy.
But when do they differ, say in a more complicated game structure? I am trying to understand the ...
- 1,167
30
votes
4
answers
5k
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?
- 3,545
20
votes
6
answers
735
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?)...
- 5,187
15
votes
5
answers
10k
views
Applications of Trig functions in Economics?
Are there any applications of trig functions (ie $\sin(x)$, $\cos(x)$,$\tan(x)$) in economics?
- 8,034
11
votes
1
answer
560
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 ...
- 1,734
9
votes
4
answers
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)?
- 209
9
votes
1
answer
18k
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 ...
- 3,454
8
votes
2
answers
3k
views
Is the economy a zero-sum game?
Theoretically speaking, if all the Earth's inhabitants were to save money and invest, is it possible for everybody to get, let's say, a 4% yearly return for everyone?
Is the economy a zero sum game (...
- 83
6
votes
1
answer
1k
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 that ...
- 171
5
votes
3
answers
791
views
Is money mostly created (out of nothing) by banks making loans?
In the Bank of England's Quarterly Bulletin, 2014 Q1, McLeay, Radia, & Thomas write a pair of articles titled:
"Money in the modern economy: an introduction" and
"Money creation in ...
user20317
4
votes
1
answer
699
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_{...
4
votes
2
answers
17k
views
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 ...
- 801
1
vote
3
answers
654
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. ...
- 382
-1
votes
2
answers
314
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 ...
user4020
22
votes
6
answers
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 ...
- 321
18
votes
3
answers
992
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 ...
- 33.1k
13
votes
2
answers
12k
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{\...
- 3,454
13
votes
4
answers
78k
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 ...
- 3,454
12
votes
2
answers
40k
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 = \...
- 245
11
votes
2
answers
469
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 ...
- 3,751
11
votes
2
answers
973
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-...
- 9,325
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
612
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 ...
- 28.1k
8
votes
3
answers
341
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
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 ...
- 3,454
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 ...
- 28.1k
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
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
582
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 ...
- 121
0
votes
1
answer
86
views
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 ...
- 165