22 votes
Accepted

Why are real median household incomes stagnant?

The metric of median household income is also used by others to argue the presence of income inequality: https://en.wikipedia.org/wiki/Income_inequality_in_the_United_States#Causes However, it seems ...
  • 27.2k
20 votes

Why do we need to "get the economy moving again"?

Both Alice and Kate have bills to pay, regardless of whether they are earning money or not. Restaurants and salons have to pay rent and maintenance on their properties whether they are in business or ...
15 votes
Accepted

When Optimal Control fails (?)

I believe the problem is that the steady state may not exist, and the system instead exhibits steady growth (depending on parameters). The reason is because the model is equivalent to the standard ...
  • 1,056
15 votes
Accepted

Solow Model: Steady State v Balanced Growth Path

This is when the attempt at accuracy creates confusion and misunderstanding. Back in the day, growth models were not incorporating technological progress, and led to a long-run equilibrium ...
15 votes
Accepted

Transversality Condition in neoclassical growth model

The transversality condition may be more easily understood if we start from a problem with finite horizon. In the standard version, our objective is to $$ \max_{\{c_t,k_{t+1}\}_{t=0}^T} \sum_{t=0}^...
  • 14.7k
13 votes

Why do we need to "get the economy moving again"?

Trade is good because it creates efficiency. Alice has invested in her kitchen and knows the supply chain of ingredients, and due to the efficiency of her business, she can sell a meal for $50. If ...
12 votes
Accepted

Does Inflation Make Money Eventually Worthless?

"Worth less" than before - yes, that's exactly what inflation does. "Worthless" - not quite. No percentage-based reduction in value can make something worth 0, but there are extreme examples from ...
11 votes
Accepted

Schumpeterian Business Cycles

I will toot my own horn and cite - Phillips and Wrase. (2006) "Is Schumpeterian ‘Creative Destruction’ a Plausible Source of Endogenous Real Business Cycle Shocks?," Journal of Economic Dynamics and ...
10 votes
Accepted

Should we expect more structural technological unemployment if growth becomes more limited by natural resources and less by labour?

I understand that you are asking the following Up to now, we have avoided structural unemployment because we increased production by more than what the technological efficiency gains implied (...
10 votes
Accepted

What fraction of new businesses die out within a year?

The Business Dynamics Statistics (BDS) of the Census provides annual measures of business dynamics (such as job creation and destruction, establishment births and deaths, and firm startups and ...
  • 6,672
10 votes
Accepted

Is investment in real estate a real investment?

Purchasing new homes would count as an investment. According to Blanchard et al. Macroeconomics: a European Perspective pp 568 in glossary investment is defined: Investment (I): Purchases of new ...
  • 45.1k
9 votes

Schumpeterian Business Cycles

There have been examples of some papers that incorporate these ideas. They are typically housed within the endogenous growth literature. Off the top of my head, these are the papers that I think of: ...
  • 1,583
9 votes

When Optimal Control fails (?)

I am posting this as an answer, because it continues on user @ivansml answer... which is the one that identified the catch here, a catch I naively have overlooked (although it is a narrow case, while ...
9 votes
Accepted

Why is economic growth measured exponentially rather than linearly?

Growth as is meant here "must" be nothing in particular. It is a specific metric, the percentage change in yearly GNP/GDP, and it is what it is. In Blanchard and Fischer 's "Lectures on Macroeconomics"...
8 votes

on economic growth and Second Welfare theorem

The two statement say two completely different things. So, no, there is no contradiction. The second welfare theorem essentially says that a system of transfers that results in an efficient ...
  • 9,165
8 votes

Why some countries are wealthier than others?

One argument brought forward (it is a generalization/argument for lack of infrastructures) is the Acemoglu-Robinson hypothesis of extractive versus inclusive institutions. Long-story short: some ...
  • 10.5k
8 votes

How do economies grow?

GDP is a measure of economic activity. One typical way to look at the question is the way shown in another answer. Here I want to put some assumptions in place in order to give a bit more structure. ...
  • 10.5k
8 votes
Accepted

Is economic growth measured in real GDP or in real GDP per capita?

Usually GDP growth rates are publicly talked about in real terms but not per capita, see for example World Bank where, above the relevant table we read Annual percentage growth rate of GDP at ...
8 votes
Accepted

Can the stock market grow faster than GDP indefinitely?

There are trends that has allowed stock markets in advanced economies to grow faster than GDP for a long time: Branching out abroad. This gives access to faster growing markets in developing ...
8 votes

Why do we need to "get the economy moving again"?

Let's consider another example. I'm an automotive manufacturing service engineer; I build and repair machines that are used to build and repair cars. I use the money I earn to buy a variety of things, ...
7 votes

Why is economic growth measured exponentially rather than linearly?

Because linear functions don't match the data. You can't express a series $$[1,2,4,9,16]$$ as $$f(x)=x+y$$ for any possible $y$.
7 votes

Why do we need to "get the economy moving again"?

Most people aren't Alice and Kate. GDP is a measure of the total goods and services produced within an economy. The point is measuring total production, not measuring how much money is changing hands....
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7 votes

How can the stock market keep growing indefinitely?

As mentioned in the other answer, the amount of money does not have to correspond to the total value of all assets in the economy. However, there is some correspondence that is not mentioned in the ...
  • 45.1k
6 votes

Inflation and economic growth

Macro regressions, especially annual ones, have in general two flaws: They have small sample problems and They have no proper identification In order to circumvent problem #1, people often assume ...
  • 10.5k
6 votes
Accepted

Solow model: Partial derivative of y with respect to n

You need to use the implicit function theorem. The long-run relationship implies $$ 0 = F(n,k) = s f(k) - (n+g+\delta)k, $$ and this implicitly defines function $k(n)$. The derivative is then $$ \...
  • 1,056
6 votes

Why is economic growth measured exponentially rather than linearly?

Because we use today's capital stock to produce tomorrow's output, some fraction of which is invested, so you should expect something like $dK/dt=\alpha f(K)$ where $f$ is increasing in $K$.
6 votes

Banking System, Canada & US

Limiting the scope to the question of why the US encouraged the proliferation of many banks, one important contributor was the 1927 McFadden act, which placed significant restrictions on interstate ...
6 votes

Deriving the golden-rule savings rate in a Solow Model

The "golden rule" is the level at which steady-state consumption is at a maximum, given the parameters of the model. Steady state consumption is $$c^* = (1-s^*)\cdot f[k^*(s^*)] = f[k^*(s^*)] - s^*f[...
6 votes

Why the total value of the whole economy is constantly appreciating?

Roughly, people produce "stuff" by spending their time working (labour) and by employing machinery/tools/land/etc. (capital). If you have more workers or more machinery then it should not come as a ...
  • 16.6k

Only top scored, non community-wiki answers of a minimum length are eligible