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 ...
- 301
17
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}^...
- 15.8k
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 ...
- 718
10
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 ...
- 1,391
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 ...
- 57.7k
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, ...
- 193
7
votes
Alpha interpretation in Solow growth model
I don't quite understand what you mean by "share that goes into capital", but the common interpretation is that $\alpha$ is the share of income/output spent on capital.
You can show that the ...
- 306
7
votes
Accepted
How is the GDP growing when nothing else seems to be?
There's a bit to unpack here.
Consistent wage growth seems in line with rising GDP. So does a steadily falling unemployment rate.
For other economic measures, the stock market is a whole other ...
- 6,658
7
votes
Accepted
Macroeconomics for Mathematicians
I really think a great place to start in general is Olivier Blanchard's "Macroeconomics". However, this is an economics undergraduate text and may not be optimal for a mathematician, especially given ...
- 6,246
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....
- 430
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 ...
- 57.7k
7
votes
Accepted
How to use Leibniz Rule of integration to find interest rate in Expanding Variety model
The Leibnitz rule for differentiation of an integral is a consequence of the fundamental theorem of integral calculus.
A so-called integral function is defined as
$$F(x) = \int_a^x f(t)dt\;\;\;\;\;\;\;...
- 4,122
7
votes
Accepted
Conditional Convergence
Let me clarify the concepts of absolute and conditional convergence:
The hypothesis that poor economies tend to grow faster per capita than rich ones without conditioning on any other characteristics ...
- 1,262
6
votes
Accepted
Why does immigration boost the economy? (or does it not...?)
You’re right, the migration of workers boost the economy. It’s a stylized fact. It may have political consequences, though, but it is not the part of the analysis of economics. Let’s consider $A$ the ...
- 1,044
6
votes
Can an economy grow without its population growing?
Yes, there can be economic growth without population growth.
As a reminder: gross domestic product (GDP) is the total value of all of the goods and services produced within an economy over a period ...
- 17k
6
votes
Transversality Condition in neoclassical growth model
In my opinion, the best derivation is by logic. Think about it this way: If the only thing we are telling the household is to maximize its utility, optimal behaviour would then be just making infinite ...
- 870
6
votes
Accepted
How is wealth created?
First we need to discuss what wealth is. Is it just the amassment of valubles? In the 16th-18th century, rulers thought so. This notion is called mercantilism. This idea was rejected by Adam Smith in ...
- 1,391
6
votes
Accepted
How would gross world product look like if fossil fuel is treated as capital and not as income?
There is a large literature considering the depletion of natural resources, including fossil fuels, in relation to GDP. Some writers explicitly refer to such resources as a kind of natural capital. ...
- 8,584
6
votes
Does everyone prosper through development projects?
A lot of this comes down to risk. A developing country usually don't have very strong "institution" and are much more prone to various kinds of crisis (think military coup, hyperinflation, terrorist ...
- 2,802
6
votes
Accepted
Derivation of Solow Growth Model (Solow, 1956)
We have that:
$$
\dot K = s K^\alpha L_0^b e^{nbt}
$$
Rewriting the differential equation gives:
$$
K^{-\alpha} \frac{dK}{dt} = s L_0^b e^{nbt}
$$
Integrate both sides with respect to $t$ from $0$ to ...
- 12.5k
6
votes
Accepted
Proof of Saddle-Path Stablility in Ramsey-Cass-Koopmans model
You got to the quadratic equation
$$
\lambda^2 - (\rho - n)\lambda + \frac{c^\ast f''(k^\ast)}{\varepsilon}
$$
The discriminant is given by:
$$
\Delta = (\rho - n)^2 - 4 \frac{c^\ast f''(k^\ast)}{\...
- 12.5k
6
votes
Accepted
Are there common alternative models of economic growth, compared to Solow's model
I think that you should start reading the Ramsey–Cass–Koopmans model, where saving choices are made endogenous (whereas in the Solow-Swan model there were exogenous).
Then, the milestone literature ...
- 428
5
votes
The United States' position on the Laffer Curve
Question B in the link answers your question: most participants believe that taxable income would not rise enough to offset the tax cut, indicating that they do not believe we are on the wrong side of ...
- 6,384
5
votes
Larry Summers on the causes of secular stagnation
French economist Jean-Baptiste Michau has published in 2018 a relatively simple model of secular stagnation:
To investigate secular stagnation, I add two features to a standard Ramsey model with ...
5
votes
Basic Solow Growth Model: Stability Proof
For completeness, let me illustrate this in the continuous time framework. The Solow equation, in the simplest of cases, is
$\dot{k} = s f(k) - \delta k = \phi(k)$
Then we have
$\frac{\partial \...
- 151
5
votes
Accepted
Who said that growth would stop because of satiation?
In an essay entitled Economic Possibilities for Our Grandchildren, Keynes famously argued that people would one day only need to work 15 hours per week (see bottom of p 4). This was linked to an ...
- 8,584
5
votes
Accepted
Does trade lead to economic growth in the most basic models of trade?
It depends on how you define "growth". Trade models have multiple goods in them, so there's no unique way to define "growth" - you are just moving along a fixed production possibility frontier. You ...
- 691
5
votes
Accepted
How does the economy of a city work?
Answering your question involves the various sub-fields of Regional Economics, such as Spatial Competition theory (Hotelling, 1929), Economic Geography, Urban
Economics (Alonso, 1964), New Economic ...
- 1,435
5
votes
Do patents foster innovation?
This article is from 2002, but it does a pretty good job of summarizing the pros and cons and has a section on normative decisions. Here is the abstract:
In this paper, we review the economic ...
- 384
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