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You need to be clear on which one is the effect and which one is the cause in the elasticity formula. Also this formula relates two percent changes of x and y and not proportions (which is a different concept). In this case, it seems that the income changes (and price remains constant), so we want to see the effect on the demand (quantity). Therefore Var%...


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Actually, the answer is even more simple than what's been given. The social planner problem is just an optimization problem. It's just math. Under some mathy conditions, it has a solution. The key question isn't "why is this optimal", it's "what am I optimizing, and why?" The benevolent social planner problem is characterized by a particular social ...


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Bitcoin as a store of value is an improved version of gold. A bitcoin based system would be like returning to the gold standard, without the actual need of any intermediaries or trusted parties and with the convenience of a digital medium with respect to a physical material. In the book The Bitcoin Standard: The Decentralized Alternative to Central ...


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The shock process is already linear. any log linearisation will result in identical expression. The underlying non linear shock process can be something like this:$ $$ Z_t = Z^{(1-\rho)} Z_{t-1} e^{\epsilon_{t}}$$ This when you linearise, you obtain your linear shock processes.


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I think the big unknown here is how much they'll start to dissimulate and/or offshore their (new) wealth. According to one paper: A recent study by Brülhart et al. (2017) gives support to the plausible assumption that the effect of net wealth taxes on reported wealth is the more pronounced the more integrated the regions involved are. According to ...


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Quick and easy way is to think of a foreign currency (let's call this USD) as another good with its own demand and supply. Imports and exports When a country imports a lot (assuming it imports from the US or the invoice is in USD), the importers will need to pay for these goods in USD. To do this, they go to a bank (roughly speaking) and buy USD, pay for ...


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It really depends on the problem. As to why it would disappear, sometimes you can express the multiplier in terms of variables at the present or past, as in $\lambda_{t+1}=\lambda_{(c_t,n_t,M_t)}$ , which means it's an expectation over values that are known at that time. Therefore, you have $E_t[\lambda_{t+1}]=E_t[\lambda_{(c_t,n_t,M_t)}]=\lambda_{(c_t,n_t,...


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You may be confusing money velocity with money supply. From Wikipedia, the velocity of money is "measure of the number of times that the average unit of currency is used to purchase goods and services within a given time period." There is indeed more M2 than M1 but the velocity of M1 is often higher than that of M2. The shared portion of M1 and M2 will have ...


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I used to think that microeconomics was relatively more scientific than macroeconomics. Early macroeconomics, in particular, suffered from a choosing models of agent behavior that made modeling easier but bore little relationship (or at least a highly disputed relationship) with reasonable behavior of individual agents. This led to the microfoundations ...


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Personally, I never saw it this way. My background is in physics first, and I always viewed the micro/macro distinction as analogous to the quantum/classical distinction in physics. The point of macroeconomics is to describe the dynamics of bulk populations, which, due to constraints around information flows rooted in actual physics, are more efficient to ...


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Those who decry the status of macroeconomics (to a certain extent), e.g. Krugman, do so because the macro field being closer to high-level political decision making is often involved in controversies, even if only a small part of the macro field itself is actually controversial (according to Krugman, 2013). OK, here’s how I read the Gordon and Dahl ...


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The loss function reflects the central bank’s policy objective (i.e. their preferences for stabilizing inflation and some real variable around target levels, in this case output), and it says that the central bank is concerned about inflation fluctuating from their target level ($\pi^{T}$) and their perception of the equilibrium output (here reflected in the ...


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In this case, you can interpret this as the central banks' having two mandates: output gap and inflation target. Here, the best possible scenario that would minimize the CB's loss function is having zero output gap ($\hat x^2 = 0$) and inflation is at the target ($\pi = \pi^T$). The CB simply wants to get as close to this as it could, with the "importance" ...


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You need to differentiate with respect to Y, as you said! You substitute the phillips curve as you did (because it is a constraint for the central bank's optimization problem), then differentiate w.r.t $\bar{Y}$ (which I assume here stands for gap) and set this to 0 to obtain the optimality condition, which in turn will give you the monetary rule. Recall ...


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