New answers tagged macroeconomics
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We are in a "post industrial" economy. So what you asked about is now possible.
This was not possible in a pre industrial world (before the Industrial Revolution), where the amount of available goods was basically constrained by what could be supplied, mostly by hand. As you note, there is the modern phenomenon of "mass production," which was the result of ...
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I'm going to attempt to answer what I think is your question, but in a general sense (I know nothing of the food ration industry):
I basically wonder why they don't mass-produce such "military" rations, but for civilians, sold in stores, cutting costs from not having to make it "work out in the field/nature". Is there something that makes those too ...
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In short there is no apriori reason per se why GDP should always contain unit root, although many macroeconomists would argue it does. First, you have to make a distinction between real and nominal GDP, I will focus more on the former as common in economics.
As you correctly pointed out in a unit root series "the shocks to the series never die out". So the ...
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Is that just an empirical regularity?
Depends on whom you ask, and what they believe about the nature of business cycle.
The seminal paper that first applied a unit root test to macroeconomic time series and extracted economic implication is Nelson-Plosser (1982).
They were unable to reject the unit root null hypothesis for GDP and other standard macro ...
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The next sentence of the question instructs you to ignore the "700 goods and services" and focus only on meat and movie tickets.
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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 ...
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Short Answer: We need to 'get the economy moving again' because at this point in human history it is the only means we have of not sinking more societies into a state of civil war.
Long answer: We don't need to 'get the economy moving again' necessarily, because 'the economy' that will be made to move again will not be exactly the same as the pre-covid ...
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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 ...
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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 ...
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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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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'...
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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 ...
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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, ...
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Trade creates value.
Previously, Kate preferred spending \$50 on food at Alice's restaurant (rather than cook her own food). And Alice preferred spending \$50 getting her hair cut at Kate's (rather than cut her own hair). That Kate must now cook her own food and Alice cut her own hair means that value has fallen (where value is broadly defined as the degree ...
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They all map through production function to output $Y$. Since output is produced from these factors we have
$$Y=f(K,L,E,N,...)$$
Where, $K$ would capital, $L$ labor, $E$ would be entrepreneurship and $N$ nature - you can also include any arbitrary number of factors and also note while entrepreneurship is in some textbooks considered factor, nature is ...
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Mathematically, market completeness in continuous-time models does not follow from discrete-time heuristics.
In discrete-time, market completeness replies on only linear algebraic considerations.
This does not translate to statements about continuous-time martingales and their representation as stochastic integrals.
The precisely statement that gives ...
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It is important to distinguish between a) the total stock of building land, much of which may be already built upon, and b) that (usually small) part of the stock on which new building takes place in a particular period. A simple way to include building land within an aggregate production function for a period would be to focus on (b) as an input which, in ...
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In a one line exercice, it is possible to show that in perfect competition, an output elasticity wrt any input greater than one, implies negative profits.
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Land would fit into production functions or many economic models the same/similar way as other factors of production.
An example of general Cobb-Douglas function with land would be:
$$Y(K,L,T) = A K^{\alpha}L^{\beta}T^{1-\alpha-\beta}$$
Where $K$ is capital, $L$ labor, and $T$ land. Into most economic models land can be integrated rather easily as the ...
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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 ...
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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 ...
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Your assumption is correct. Value added is Gross Output-intermediate consumption(inputs).
value-added approach is a simple measure that ignores the difficulties of dealing with inter-industry and intra-industry flows of goods and services. Intermediate inputs are simply excluded here.
The value-added approach provides a simple link of industry-level MFP
...
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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 ...
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There are several ways how central banks can still control money supply even if we assume the government does not issue any bonds.
First, there is the discount rate at which other banks can borrow money form the central bank. The nominal interest rate throughout the whole economy depend on the discount rate as the rate at which banks are willing to borrow ...
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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 ...
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Wealth inequality generally makes combating crisis harder not easier.
Consumption is primarily based not on wealth but income. Hence just because some class of people owns $60\%$ of country's wealth that does not mean their share of consumption will be the same.
People with higher incomes usually have lower propensity to consume than poor people. This is ...
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There is a market for inflation-linked bonds. The quoted yield on the bonds is the equivalent of a real yield, with the inflation rate corresponding to expected inflation.
The real yields On US inflation-linked bonds are currently negative. Link to FRED data.
There is no mystery to this.
Nominal yields are effectively pinned to the expected path of the ...
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The Fisher equation does not necessarily implies the chain of causality is from the inflation or nominal interest rate to the real interest rate.
The real interest rate is given by the intersection of the IS LM curve - as shown on the diagram below. The real interest rate depends on the availability of savings. The same way as recently the futures oil price ...
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You can't apply it to the national income identity directly because its components, namely consumption, investment and imports are functions of national income (output) and hence, they are not autonomous. In fact, in simple undergraduate level model, following Blanchard et al:
$$ Y = C(Y-T) + I(Y,i) + G + X(Y^*, \epsilon - M(Y, \epsilon)/ \epsilon $$
...
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I don't think that there is a monthly PPP series but you might want to contact the OECD as they have a monthly comparative price levels(https://www.oecd-ilibrary.org/economics/data/prices/comparative-price-levels_data-00536-en)
https://stats.oecd.org/Index.aspx?DataSetCode=CPL
which uses ratios of PPPs for private final consumption expenditure to exchange ...
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For your first question:
Some have noted that surveys make people feel like they are a part of something bigger than themselves and that their opinion matters.
According to Ed Halteman (survey expert) two reasons why people participate in surveys, , are that they feel their participation will affect something they care about, and they want to share their ...
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Direct intervention by the U.S. Treasury in the foreign exchange market offers one option for the president. The Treasury would use dollars to buy foreign currency bonds, bidding up the relative prices of foreign currencies and weakening the dollar.
Another option is imposing taxes on the foreign purchase of U.S. assets as a way of weakening the dollar ...
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The GDP growth is super estimated.
What is economy?
If you look for the definition in Google you'll get "the wealth and resources of a country or region, especially in terms of the production and consumption of goods and services.", but the wealth and resources can be subjective concepts. What is important for you, what you value may not be a consensus. We ...
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Scenario “C” does not specify “unexpected.” Since greater growth was expected, planned inventory investment would rise to meet higher expected demand.
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In theoretical modeling the consistency is applied in the same way as in philosophy/logic. Internal consistency simply means that the argument is consistent with itself and has no contradiction within itself (as opposed to external consistency where its not enough for argument to be valid on its own but it should also not contradict other facts).
A simple ...
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In case someone finds this helpful, I'll answer my own question.
Risk premium, say for example on some risky assets such as stocks, is the expected return on the risky asset less the risk-free rate.
However, empirically we have that this risk premium on stocks is much larger than the riskfree rate and also that it varies quite a bit more. So we introduce ...
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Explanation for kids
Japan is a middle-aged doctor who took out a second mortgage maybe they shouldn't have. They are still wealthy, and still have a great, high income job. So people will take more chances loaning them money, even if the debt is starting to pile up. If worse comes to worst, this doctor can always sell their vacation condo to make ends meet....
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As asked, this question is too vague and open-ended. But the following statements seem safe.
The effect of a fiscal stimulus is to raise growth and expected growth. All else equal, the central bank would be expected to raise interest rates, and inflation would be slightly higher, but still should remain near target (or else the central bank is going to have ...
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The multiplier comes from the solution to the goods market equilibrium. In economics everything is endogenous. Increase in income increases consumption that increases demand, demand increases production and production increases income. However, as an echo in a cave the initial increase in income gets 'weaker' as it cycles through the economy and the result 1/...
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This is due to the famous Lucas critique.
To make long story short, in the past in the heyday of Keynesian macroeconomics it was quite normal for macroeconomists to just postulate some relationships based on relatively casual empirical observations like for example the Philips curve which says that there is positive relationship between inflation and ...
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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 ...
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You can find OLG models that do not classify as DSGE (in particular, the model might not be stochastic) as well as DSGE with overlapping generations (contrary to those with infinitely lived agents).
You can find more detail on this on this working paper by Assous and Duarte (2017), as they note
In the early 1980s, when the real business cycle ...
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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, ...
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What is the reason for the U3 rate being the more popularised and widely emphasised measure of unemployment in the United States and also for other developed economies?
Historically, data for U-3 have been collected for longer than U-6.
For example, in the US, the former have been collected since 1948, while the latter only since 1994. So, it is "...
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Value added GDP measures the total market value of all final goods and services produced in the same country. Intermediate goods (goods or services that are input in the production of other goods) are not included in Value added GDP to avoid double counting.
The making of bread( raw materials) would be the cost of the initial inputs to include ...
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But I don't believe that the plot will shift like this in response to such bad news, it seems to contradict what I learned about microeconomic autonomous spending (I believe that the same must be true for aggregate autonomous spending). It's spending that you just WON'T reduce, they are too critical. You will tap into your savings, you will borrow or ask for ...
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Based on the steady state your production function is Cobb-Douglas.Taking logs and derivatives wrt time of $Y$, $\frac{Y}{L}$ and $\frac{Y}{AL}$ in the steady state yields the desired result: $K$ grows with $n+g$ on the BGP.
It would be interesting to know what the supervisor's objection was.
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I agree with 1muflon1, but allow me to add some more nuance.
Identification and calibration can be meant to express a subset of estimation. Any identified coefficient is also an estimate, but not vice-versa.
An identified estimate is any estimate that fulfills certain conditions that make it the true number we want.
For example, any coefficients from (...
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Identification and estimation are often used interchangeably (at least that’s my observation from attending conferences and reading papers) but according to econometric literature there is a subtle difference.
For example, in the John Stachurski, a primer in econometric theory the identification is a process of finding out if the parameters are identifiable ...
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It is exceedingly rare for commentators to discuss the discount rate. As such, referring to “rate cuts” typically refers to Fed Funds.
In any event, under normal circumstances, the discount rate is kept at a constant spread to the Fed Funds rate, so they move at the same time.
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