# Tag Info

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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 that it is not only the median but also the mean that stagnates: (I used family instead of household income because I could not find a time series for mean ...

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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 not. They both need to feed themselves and possibly their families whether they earn income or not. They need electricity and water and other utilities in ...

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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 characterized by constant per capita magnitudes. Verbally, the term "steady-state" seemed appropriate to describe such a situation. Then Romer and endogenous growth ...

13

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 consumption-saving problem with exogenous and constant interest rate. To see that, first consider the first order condition for labor choice $f_2(k,\ell) = w$ (...

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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 $$\max_{\{c_t,k_{t+1}\}_{t=0}^T} \sum_{t=0}^T\beta^t u(c_t)$$ subject to \begin{aligned} f(k_t)-c_t-k_{t+1}&\ge0,\quad t=0,\dots,T &&\text{(resource/budget constraint)}\\ c_t,k_{t+1}&\... 13 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 Kate wants to cook the same meal, she'll have to buy all the necessary equipment and ingredients, and spend time learning cooking techniques, and by the end, she'... 12 "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 history of times inflation has spiralled so far out of control ("hyperinflation"), money became worth less than the paper it was printed on, and life savings ... 11 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 Control, vol. 30 no. 11 pp. 1885-1913. We found it difficult to match the volatility using Schumpterian mechanisms alone. The business cycle asymmetries from ... 10 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 (and so eventually re-employed the labor that had become initially obsolete, usually in other industries). But if finite resources put constraints on how much ... 10 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 shutdowns) for the economy and aggregated by establishment and firm characteristics. The use of the LBD as its source data permits tracking establishments and firms ... 10 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 houses and apartments by people, and purchases of new capital good (machines and plants) by firms. The source above is the leading undergraduate macroeconomics ... 9 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", in the introductory chapter 1, page 2, Figure 1.1, the logarithm of USA GNP 1874-1986 is graphed: and it is impressively linear , bar a disturbance around ... 9 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: "Endogenous Growth And Endogenous Business Cycles" by Sergui and Lilia Maliar. I haven't read this paper in awhile, but if I remember correctly, the idea is ... 8 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 the interesting part comes after. Nevertheless, it should have been dealt with). Indeed, with exogenous wage rate, and perfectly competitive optimization on ... 8 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 allocation can be supported by a competitive outcome. The statement about replacing income taxes with a consumption tax will increase peoples' incentives to save. These ... 8 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 market prices based on constant local currency. Aggregates are based on constant 2005 U.S. dollars. GDP is the sum of gross value added by all resident producers ... 8 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, including, say, gasoline. Of course, if all of the automotive manufacturing service engineers stop working, that's no big deal. People can just build their ... 7 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 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 institutions are good for (long term) growth ("inclusive"), and some are good for short-term extraction of resources ("extractive"). Depending on whether the elites ... 7 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. It is widely accepted that economic output is created through capital and labor, and facilitated by technology. For the sake of answering this question, we can ... 7 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 countries. This trend will end when all countries are advanced economies. Fewer private companies. This trend will end when most of GDP is generated by companies listed ... 7 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. There are a couple of things going on here: In the example you mention of Alice and Kate, there is presumably some reason why they were paying each other ... 7 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 other answer so I will focus on that. First, there should always be enough money in the economy so people can carry all the transactions they want. If that is not ... 6 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 that the DGP process behind different countries are the same, increasing observations from perhaps 60 to 600. In order to attack #2, many people add timing ... 6 You need to use the implicit function theorem. The long-run relationship implies$$ 0 = F(n,k) = s f(k) - (n+g+\delta)k, $$and this implicitly defines function k(n). The derivative is then$$ \frac{d k(n)}{d n} = -\frac{\partial F / \partial n}{\partial F / \partial k} = \frac{k}{s f'(k) - (n+g+\delta)}, $$which can be evaluated once one has solved ... 6 Because we use today's capital stock to produce tomorrow's output, some fraction of which is invested, so you should expect something like dK/dt=\alpha f(K) where f is increasing in K. 6 Limiting the scope to the question of why the US encouraged the proliferation of many banks, one important contributor was the 1927 McFadden act, which placed significant restrictions on interstate banking (rolled back through state laws in the 1980s-90s, and eventually substantially repealed by the Riegle-Neal Interstate Banking and Branching Efficiency Act ... 6 The "golden rule" is the level at which steady-state consumption is at a maximum, given the parameters of the model. Steady state consumption is$$c^* = (1-s^*)\cdot f[k^*(s^*)] = f[k^*(s^*)] - s^*f[k^*(s^*)] \tag{1}$$where 0<s^*<1 We also have that, at the steady state (for constant capital)$$s^*f[k^*(s^*)] = \delta k^*(s^*) \tag{2} ...

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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 surprise that more goods and services get produced. But this is only part of the story. Even if we divide by the number of people to get the size of the economy ...

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