New answers tagged

1

In Galı́ & Gertler (1999) the authors state that marginal costs is given by: $$MC_t = \frac{S_t}{\alpha}$$ where $\alpha$ is the labor elasticity (from the Cobb-Douglas prod. function), and $S_t$ is the labor share of income (i.e. what portion of output GDP goes to labor). Next they actually get around estimating $\alpha$ by expressing everything in ...


2

The graph is almost correct given the assumptions about what is happening but not quite. The proper graph should look more like this picture I made in LaTex using tikz: Where $^*$ denote the new state of things given your assumptions. You are right that money demand shifts to the left and money supply to the right, but your graph missed an important fact ...


1

You might be inspired by Joshua Angrist (MIT) who talks in this podcast about the craft of econometrics--how to use economic thinking and statistical methods to make sense of data and uncover causation. Using natural experiments is a good way to establish causation. A natural experiment is an empirical setting in which individuals are exposed to the ...


2

Normally in order to full dollarization to occur there will be some conversion rate at which debt denominated in old currency is converted into new one. For example, according to the World Bank definition of full dollarization: All government and private debt under full dollarization is denominated in dollars, and both public and private accounts must be ...


3

The model you fit is simply inadequate to estimate the natural rate of unemployment any results from it will be completely unreliable, so I am not surprised if they make no sense. Furthermore, natural rate of unemployment is not necessary one where inflation is 0, that is Non-Accelerating Inflation Rate of Unemployment (NAIRU). NAIRU is often used as a proxy ...


1

Hint: The $T$ is variable itself so the total differential should read as: $$dY = C'dY - C'dT + I'dr + dG \implies dY = \frac{1}{1-C'}I 'dr + \frac{1}{1-C'}dG - \frac{C'}{1-C'}dT$$ Furthermore, by Fisher equation $r=i-\pi$. Hence we have: $$dY = \frac{1}{1-C'}I 'di - \frac{1}{1-C'}I 'd\pi + \frac{1}{1-C'}dG - \frac{C'}{1-C'}dT$$ $$(1/P)dM - (M/P^2) dP = L_r'...


2

There is probably an error in your formula for $\sum_0^s v_i$. You can use a trick to directly compute $E_0 e^{(1-\gamma)v_i}$ using \begin{align} E_0 e^{(1-\gamma)v_i}& = \Pi_0^s E_0e^{(1-\gamma)v_i}. \end{align} Notice $e^{(1-\gamma)v_i}$ is a random variable equal to 1 with probability $1-p$ and $(1-b)^{1-\gamma}$ with probability $p$. Therefore, \...


1

The data provided by Statista are estimates of public expenditure to GDP ratio for year 2017 while the Eurostat data are for year 2019. Consequently I do not see any a priori reason why the two series would be expected to match. They are not necessarily contradictory as they are for different years. Furthermore, I can't see the information on Statista on the ...


2

Output usually falls during certain quarters/months and for many countries it is in the winter. Tourists usually travel for vacations in summer when kids also get long summer holiday. Farm work is highly seasonal and there is more of it in summer than winter (as pointed out by @dismalscience in an excellent comment construction is seasonal too) etc. As a ...


1

Under the original question there are comments which imply a model or reasoning process stated as follows: markets validate investment decisions (e.g., bridge building) by rewarding the investors with profits. If this logic is used as the "yardstick" for measuring economic efficiency then it is clear that future spending decisions either validate ...


2

tl;dr: Short answer is that cardinal utility of rational person is in large part of a literature is derived from the von Neumann and Morgenstern expected cardinal utility framework. In such framework utility must be bounded by our definition of what rationality is. So in such framework the short answer is simply that utility has to be bounded for person to ...


1

A firm has a business plan. From its perspective, resources are allocated “correctly” if they achieve its business plan. However, it is entirely possible that the business plan makes no sense, e.g., it is supplying a product far in excess of what customers are willing to buy. For public companies, equity market analysts attempt to project the effectiveness ...


3

A short answer is that in case of provision of public goods in real-life we can never be completely sure if they are provided in optimal quantity due sheer difficulty of quantifying all costs and benefits, measurement problems when it comes to underlaying utility, due to uncertainties involved and many other factors. However, this does not mean that no ...


0

Let's assume familiarity with the S&D model's components for now. Imagine a seller comes to the market anticipating price A. (Their anticipation is wrong, the real price is equilibrium, found by the vertical height where S&D meet.) They pay workers overtime, hire a few extra workers to produce F units, and this drives their costs up. When they ...


2

What is the proof of this formula? There is actually no proof for what the production function should be. There are infinite many possible production functions and to discover which one is the most appropriate we need to make some empirical observations. In different cases different production functions are appropriate. Cobb-Douglas is popular production ...


0

When the supply fully meets demand, there is no deficit of goods and price depicts Cost+General markup in the market. So the price is equal and fair for all participants of the market. When supply is greater than demand, there are too many goods, so the price has to go down for you to sell goods and as a supplier you need to sacrifice either cost(quality) or ...


0

Interesting question. I am not entirely sure of the answer below but here's an attempt: "Assume that the basket used for calculating the CPI is the same as the composition of GDP. Will CPI in a given year then equal the GDP deflator? If so why, if not why not?" Answer should be NO. So CPI comprises of basket that participants consume, and * ...


3

Reselling existing goods generally doesn’t add to GDP (not sure about the case of thrift stores), but other economic activity will be triggered by a death. For example, funeral homes are an industry. However, this does not imply that a death raises observed GDP, since the living person would have undertaken other economic activities. From a longer term ...


1

No under expenditure approach neither salary or wages are directly counted. An expenditure approach to GDP calculates GDP as follows: $$GDP=C+I+G+NX$$ Where $C$ is consumer spending on final goods and services at market prices, $I$ is the investment spending, $G$ is government spending and $NX$ are net exports. All wages and salaries are of course indirectly ...


4

At market both price (in this case exchange rate) and quantity are endogenous ('dependent') variables. You are confusing two completely distinct phenomena. Movement along demand curve and shifts in demand curve. When exchange rate increases demand will be lower because we are moving along given demand curve - but increase in exchange rate does not cause ...


Top 50 recent answers are included