# Tag Info

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 ...

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 ...

5

Given $$Y = Af(K,L,Z)$$ it follows that $$\dot Y = \dot A f + A\frac{\partial f}{\partial K}\dot K + A \frac{\partial f}{\partial L} \dot L + A \frac{\partial f}{\partial Z} \dot Z,$$ where dotted expression are time derivatives and dividing with $Y$ it follows $$\frac{\dot Y}{Y} = \frac{\dot A}{A} + \left[A\frac{\partial f}{\partial K}\right]\frac{\dot K}{... 5 tl;dr Yes, investing into stock market has positive impact on growth. First, before going any further, investing into stocks is from an economic perspective just a form of saving. Consequently, following the literature this answer will be repeatedly referring to saving in general. In economics, there are two main theories of economic growth. An exogenous ... 5 I think you have a typo in your q_0: the exponent of N should be -\frac{b}{a+b}. I did the whole calculus with this corrected type of q_0 and I was able to replicate your results (this is why assume q_0 has only a typo and you actually did the algebra with the correct q_0). I suggest that the discrepancies to the paper are indeed connected to ... 4 The total value of assets can exceed the total amount of cash or money in accounts. For example, suppose we live in an economy with exactly as much money as assets (say, 100 trillion). I then produce, at my home, a masterpiece of art from common materials, akin to the Mona Lisa. Appraisers and others assess it at 1 trillion dollars. There does not need to ... 4 When it comes to economic growth there are not many reasons. As already pointed out in the question, increase in working age population would lead to increase in economic growth (see Romer Advanced Macroeconomics Ch 1). As pointed by Jasper in his comments that does not automatically mean it leads to higher per capita economic growth, but actually under ... 4 These two assumptions are not necessarily contradictory. Just check whether the assumptions are satisfied by any candidate function. For example, take F(K,N) = K^{\alpha}N^{1-\alpha}, with \alpha \in (0,1). Constant returns to scale: For any scaling factor c \in (0, \infty):$$F(cK,cN) = (cK)^{\alpha}(cN)^{1-\alpha} = c^{\alpha}c^{1-\alpha} K^{\alpha}N^...

4

Yes, there are DSGE models that can be used for forecasting. These models typically have a particular kind of steady-state, which is, more precisely, called balanced growth path (BGP). On the BGP (in the absence of shocks), key indicators growth at the same constant rate. For example, GDP, household consumption, investment all grow at 2% a year. This is ...

3

As you point out, going by the typical doctrine of extractive institutions from Why Nations Fail (Acemoglu), we have this basic framework: Disenfranchisement of private sector leads to capital flight / brain drain If long-lasted, this leads to slower economic growth and potentially a failed state However, I think we may want more granularity here. A ...

3

If your are interested in the statistic relationship between income inequality and economic growth, you should use GDP per capita growth since the others indicate level rather than growth. More generally, the choice of the variable in your (and any other) regression depends on your economics model, otherwise you are just doing some linear projections. A good ...

3

Perhaps more enlightening would be the reason why Remittances increased so much from 1976 to 1982, and then cooled off. 1977 was the year of a military coup in Pakistan (and the imposition of Martial Law), that was also, it appears, the beginning of deep structural socioeconomic changes. In such situation it is not uncommon to see a wave of emigration, among ...

3

By the way, after a house is built (whether it was built this year or many years ago) it does provide economic value. If renters live there, then the rent they pay is counted as a service in GDP. And if the home owners live there then the same thing happens, the government estimates the 'imputed rent' and that is counted in GDP.

3

In addition to @Adam Bailey's answer there is also Frank Ramsey's original paper "A mathematical theory of saving " in the economic journal. He argued that nations would at least asymptotically achieve a state of bliss, where no further growth was necessary. More precisely he states on p. 545: There are then two logical possibilities: either the ...

2

We can show this by adding some public good to the model that will be financed by lump-sum taxes (which is also discussed in Barro & Sala-i-Martin (2004). Economic Growth 2nd ed. ch 4.4.1). So suppose Cobb-Douglas is given like in Barro 1990 as: $$Y_i=AL_i^{1-\alpha} K_i^{\alpha}G^{1-\alpha} \tag{1}$$ Now for any given $G$ profit maximizing firms will ...

2

Recently, Bronwyn Hall published an NBER working paper that seems to be exactly what you need. https://www.nber.org/papers/w27203

2

The reason why the $e^{nt}$ term is there is because you want to multiply the whole utility by the number of people. You are actually not substituting consumption into the utility but multiplying the utility of an individual by the number of individuals. So the problem would look like: $$\int_{0}^{\infty}\frac{c^{1-\sigma}}{1-\sigma}e^{nt} e^{-\rho t}dt$$ At ...

2

From pure trade theory perspective there are cases where tariffs can improve welfare of a country provided it is big economy (economy that can affect international prices). And there can be also other arguments made in favor of some protectionism such as infant industry argument (protecting new industry until it is competitive), national security (you don't ...

2

Constant returns to scale are mostly mathematical convenience. Empirically they can occur but there is no guarantee that they will. Although you should note that Solow model can be tweaked to accommodate both increasing and decreasing returns to scale. See Neto, Claeyssen, & Júnior (2019) paper as an example of people doing that, so this assumption is ...

2

First there are some inaccuracies in your question. The central bank often goes to buy financial instruments that are riskier than government bonds (such as corporate bonds)- which is called "quantitative easing". This is simply not true large part of QE program consists of buying government bonds (treasury securities). Private bonds or other ...

2

For negative values alone you can define relative change as: $$\frac{X_t-X_{t-1}}{|X_{t-1}|}$$ This is quite common way to deal with rates of change when you have negative numbers. However, when the denominator is zero then the growth rate is not defined. This can solve any issue when zero is not a base. When zero is the base unfortunately there is no way ...

2

You're right, since in basic Solow model (with population growth and no technological progress) macroeconomic closure condition (in aggregate terms) is: $$Y(t) = C(t) + I(t)$$ where $$I(t) = sY(t)$$ Now replacing the second in the first equation: $$Y(t) = C(t) + sY(t)$$ Factorizing we arrive at the equation you stated: $$C(t) = (1-s)Y(t)$$ Taking the first ...

2

Economists already consider South Korea to be developed economy. In fact some scholars already argued that Korea was a developed economy already sometime in late 90s - 2000s (see Kim, 1988; Kim, 2011). Opinions might differ because there is no precise definition of what developed country is but quite often in literature this is proxied with whether economy ...

2

Romer (1986): Increasing Returns to Long Run Growth Lucas (1988): On the Mechanics of Economic Development Romer (1990): Endogenous Technological Change Jones (1995): Time Series Tests of Endogenous Growth Models These are all classic papers in this vein of endogenous growth and questions of cross-country convergence/divergence.

2

The answer of 1muflon1 gives a more macro explanation for why economists think that investing in stocks (or bonds) will lead to economic growth. Please allow me to provide a more micro-oriented perspective on the matter. The basic principle that I will use is well-known to economists (but perhaps not so much to people outside of econ). It is the idea that ...

2

Consider the CRS production function $$F(K,L) = L f\left(\frac{K}{L}\right) \tag{1}$$ Let us write $F_1 \equiv \frac{\partial F}{\partial K}$ and $F_2 = \frac{\partial F}{\partial L}$. Assume that:  \begin{align*} &\lim_{K \to 0} F_1(K,L) = \infty,\tag{a}\\ &\lim_{K \to \infty} F_1(K,L) = 0, \tag{b}\\ &\lim_{L \to 0} F_2(K,L) = \infty, \tag{c}...

2

Because the word economic in economic growth refers to growth of economic activity. By common definition (see Eurostat) An economic activity takes place when resources such as capital goods, labour, manufacturing techniques or intermediary products are combined to produce specific goods or services. Thus, an economic activity is characterised by an input of ...

1

Decreasing returns to standard of living means that if you add a certain amount $\delta$ to the income of a low income person, then the increase in her standard of living is bigger than if you would give the same amount to a high income person. Let $SL(x)$ be the standard of living for a person with income $x$. Take a person with income $x$ and a person with ...

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