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Intermediate Consumption vs Savings-Investment in National Income/Expenditure Accounting

The broken assumption was that the company A had 0 profits because it earned and spent \$2. The key concept I missed was capitalization, which implies: Company A only realized an expense of \$1 (...
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1 vote
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Intermediate Consumption vs Savings-Investment in National Income/Expenditure Accounting

Where does S come from? It looks to me like X is an investment that doesn't come from savings and I can't seem to fit it on any variant of the circular flow model Saving on national account doesn't ...
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J Curve and DD Schedule in the Short Run (International Finance)

The DD curve will not be downward sloping because of the value effect dominating initially. It will shift to the left. Hence, a temporary expansionary fiscal policy or monetary policy can be used to ...
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2 votes

Economic consequences of taxing every dollar in the bank rather than earners alone

I believe the idea is to make society more equal (reduce imbalance of living standards)? You make some bold statements like Statement 1 In my opinion (NOT sure) 1% of total money in the bank will be ...
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Factoring Technology into Economics models

Measuring technological progress (especially in specific sectors is relatively simple). The basic idea is that a technological improvement can be understood as an improvement in efficiency, i.e. it ...
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Chain effects when Money Demand is greater than Money Supply

Always keep in mind that the total quantity of money in the economy is not altered by the attempts of individuals to change their own holdings of money. The currency or checking account balance that ...
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4 votes

Economic consequences of taxing every dollar in the bank rather than earners alone

Here are a couple easy ones off the top of my head: Let's say you have a negative interest rate at the bank. You do not have a negative interest rate under your mattress. So, rather than keeping ...
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Human Rationality and Marginal Utility

Psychological irrationality and economic irrationality are different. In economic rationality, you have well-defined preferences, you know your budget constraints and if you can move to a higher ...
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Is is possible that two economies have the same real interest rate, same GDP growth, but different inflations?

This is just a conceptual thought experiment. Is it possible that two countries have the same real interest rate, same GDP growth, but different inflation, one higher, one lower? Yes it is possible. ...
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2 votes
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Is Khan Academy wrong about inflation?

Well that depends on how harsh you want to scrutinize the story. I do not think the Khan Academy story is wrong in itself, although it lacks nuance for sure. The story is oversimplification of a ...
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Monetary Policy - How can increasing interest rates cause higher inflation in the short term?

Businesses have debts or liabilities, interest is an expense that's likely to be passed on to consumers in the form of increased commodity prices. This will result in inflation in the short term. ...
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Are High Inflation Rates In Foreign Countries Unrelated to High Inflation Rates In The United States?

Government has always some degree of control over inflation in a country. For example, consider simple New Keynesian model of money market equilibrium given by: $$M/P = L(Y,i)$$ Where $M$ is money ...
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3 votes

Why did economic forecasters get inflations predictions so wrong?

If one could make such long comments, I would write this as a comment, not an answer. I neither forecast weather, nor inflation. However, I am a risk manager in banking, and forecasting is part of my ...
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1 vote

Does money need to fulfill all three functions (store of value, medium of exchange and unit of account) to be considered money?

According to general literature, yes it should satisfy all three. For example, some papers question whether bitcoin is money because of being poor medium of exchange such as Yermack (2015). In ...
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1 vote

Mistake in Wikipedia article on Fixed exchange rate system?

I believe you are right, in that it is partially wrong. Based on my understanding, it is correct that $e$ refers to a dollar appreciation (also intuitive, because dollar demand increased by ...
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1 vote

What constraint is there on velocity of money?

Velocity is not average number of transactions. Velocity is the average number of times unit of currency is used. Following, Fed: The velocity of money is the frequency at which one unit of currency ...
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2 votes

Why did money stop being backed by precious metals?

Why did money stop being backed by precious metals? Ultimately people realized that it is waste of scarce resources to dig up gold/silver from the ground just to put it under the ground again (in a ...
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1 vote

Macroeconomics and microeconomics

Can we say macroeconomics is top down approach and microeconomics is bottom up approach This is not entirely true for present day macroeconomics. Present day macroeconomics (e.g. macro that came to ...
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Fed's sales of government bonds and its effects on banks' assets

“If a central bank sells bonds, theoretically, the money used to buy those bonds is taken out of the deposit accounts of the country's banks” This is generally correct. But the following statement: “ ...
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What does omitting capital from production function assume about capital?

For a production function $Y=F(K, L)$ of two inputs $K$ and $L$, I think there can be two interpretations One interpretation could be the production function is characterized by fixed capital, ...
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-4 votes

who exactly determine market price?

There is no market price. There is an ask price and a bid price. The ask price is the minimum price which the seller will accept. The bid price is the maximum price which the buyer will pay. These ...
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3 votes

who exactly determine market price?

The statement that currency charts are always the same everywhere is simply wrong. Trading takes place through transactions at brokerages, over-the-counter (OTC) ...
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  • 1,756
3 votes

How will world economy run when we run out of oil reserves?

First, of all it is really difficult to answer these sort of far fetched questions. Over time humanity is having more oil reserves (see graph below from Energy Institute), and there is no reason to ...
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4 votes

CES v. Leontief Aggregator in Production

This is an old thread that I came across while searching on CES aggregators. My understanding of CES aggregators is that they are mainly used to aggregate outputs. I don't know whether they have been ...
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Calculating profit from price and cost

The profit of the firm by definition is: $$\Pi= TR-TC$$ Where $\Pi$ is profit, $TR$ total revenue and $TC$ total cost. By definition total revenue is price times quantity $TR=P \cdot Q$ (in your case ...
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