19

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 ...


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'...


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 ...


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

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 ...


5

In addition to the +1 answer of @KennyLJ which corrects the misconception beteen money and value, let me address the question in your last paragraph directly. Even if we could assume for a sake of the argument that we can manage to perfectly redistribute all income from people and businesses who are still able to operate and produce value (such as netflix, ...


5

I can see how a new product can value more than the sum of its parts, but I don't understand how this can increase the wealth of a society. The wealth of society, in material sense, consists of what it can produce. Production of more products or services is the wealth. Economic growth is by definition a continuous increase in production. In fact the way how ...


5

You seem to be having some misconception how these transfers work Printing money and giving to the poor causes inflation. Increases demand and hikes prices. This is basically certain. This is not generally how government transfers are done. In fact it is very rare to see in practice transfers that are payed by directly printing money. However, if it ...


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

An answer along macro textbook lines is given by @1muflon1. A shorter answer is as follows. Consider an investor who borrows capital from household (who owns the capital, in growth models) to invest in the firm with production technology $f(k)$. The rate of return $r$ on capital for the household is the interest rate of borrowing for the investor. Each ...


4

This is not proven in Romer but it is a well known result. To derive it mathematically you need to take the following steps: First, the capital as in Romer depreciates so the evolution of capital will be given: $$k_t = k_{t-1} + i_t- \delta k_{t-1} \tag{1}$$ where $k_t$ is the present stock of capital, $k_{t-1}$ previous stock of capital, $i_t$ is ...


3

The question is belied by some basic misconceptions. Just to list a few: The comparison of GDP in nominal terms and implied statements about growth. The definition/measurement of GDP (where saving is apparently not part of GDP). The (completely) arbitrary prices of goods being prescribed for this economy. The meaning of equilibrium. John produces 100kg ...


3

We know that $g_A = \dot{A}/A$ and thus $g_A = \delta L_A A^{\phi-1}$. Take logs of both sides of $g_A = \delta L_A A^{\phi-1}$ and differentiating with respect to time gives us $$ \frac{\dot{g_A}}{g_A} = n + (\phi-1)g_A.$$ Multiply both sides of the equation by $g_A$: $$ \dot{g_A} = n g_A + (\phi-1) g_A^2$$ Given that $\phi<1$, and in the steady-...


3

I want to know if it's valid to talk about the economic growth and development of a city instead of a country In principle there is nothing wrong with narrowing your research question down to municipal level. There are studies that look at economic growth on urban level. Here is just an example that came out of quick google scholar search: Ding, Chengri, ...


3

The elasticity of output with respect to capital will be less than 1 due to the diminishing marginal returns of capital - this is both realistic on macroeconomic scale and also one of the central assumptions of the model. According to Romer’s advanced macroeconomics, pp 12 section 1.2 assumptions: “The intensive-form production function, $f(k)$, is ...


3

This is actually quite complex issue. Taken narrowly answer to your question: what is the relationship between population growth and economic growth Is that simply the relationship is positive. This is because in the question you ask only about growth of GDP per se. Growth ultimately depends on growth of production and labor is an important input in the ...


3

There is more than one way to derive the formula for $g_A$ with constant growth: the following is a way I find conceptually simple. Starting from your $g_A=\delta L_A A^{\phi-1}$, differentiate with respect to time (using the product and chain rules) and (for constant growth) set the result to zero: $$\dot{g_A}=0=\delta[A^{\phi-1}\dot{L_A}+L_A(\phi-1)A^{\...


3

As you say the first step is to take log of both sides after that you are just applying the rules for logarithms and rearrange. For example: $$\ln (XZ)=\ln X + \ln Z$$ $$\ln X/Z= \ln X - \ln Z$$ $$\ln X^a = a \ln X$$ $$\ln 1 = 0$$ Also an important approximations that hold close to zero are applied here as well these are: $\ln(1+x) \approx x $ for $x$ ...


3

There is a nice review from Petra Moser (NYU) on Patents and Innovation: Evidence from Economic History in the Journal of Economic Perspectives (2013). There is another paper on The Choice between Formal and Informal Intellectual Property: A Review, in the Journal of Economic Literature (2014), where the role of innovation is central.


3

There are different notions of neutrality of technical progress in macroeocnomics. You can have Hicks-neutral technical progress - that is a technical progress that increases the marginal productivity of all factors of production by the same proportion at the same capital-labor ratio. An example of Hicks-neutral production function would be one where $Y^*= ...


3

Yes if you would want to calculate it per capita basis then you would just divide by population of the country/monetary union for which you are calculating it in the same time period. Per capita literary means per head, and whenever any quantity is calculated per capita terms whether its gross domestic product, gross national product, gross value produced, ...


3

There are two main theories of economic growth, the Solow-Swan growth model and Romer endogenous growth model. Both of these models allow for exponential growth. The economic output (GDP) can be modeled through standard Cobb-Douglas production function. For example, a classical production function is given by: $$ F(K,L) = AK^{\alpha}L ^{(1-\alpha)},$$ where,...


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

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 ...


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 ...


2

Considering GDP reflects the material means of living that a nation could achieve, this definition could be a little reductionist but works for answering your question (see materials means of living as every thing that all human could use in his life and has had to been produced). Now population always grows, and the more people there are in the world the ...


2

Capitalism is predicated on an expanding economy. When Mr. Moneybags goes to market, he exchanges his money ($M$) for the commodity of labor ($C$). He employs this labor to create further commodities, which he then sells for some amount of money ($M'$). This process only makes sense if $M' > M$. Since $M'$ is collected at a later date than $M$ is launched ...


2

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


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