New answers tagged

1

You are correct in most of your arguments. but Note that $ GDP = C + I + G + (X - M) $ M is rather just an accounting variable, since GDP measures only the domestic production, there is a need to substract M from imported expenditures. However, note that $ NX = X - M$ which also includes the export variable, therefore if there is a trade deficit due to ...


2

This first function is the ‘original’ CRRA function. $$u(c_t) = \frac{c_t^{1-\theta}-1}{1 - \theta}$$ The second function is monotonic transformation of the first function. Monotonic transformation of any utility function will still represent the same preferences (monotonic transformation preserves the ordering of preferences). $$u(c_t) = \frac{c_t^{1-\theta}...


1

This is really something that could be googled with ease. Every source that computes GDP provides a very comprehensive explanation of the methodology, the release dates etc. Granted, these documents are usually very comprehensive and complex. 1 ) No. The reason we do not have monthly GDP is that it is too difficult to obtain data for higher frequencies. For ...


0

It would work the same way as it worked with gold just with some other commodity. Currency is just particular kind of money. Anything that fulfils three basic function of money is money and thus can be considered currency. These functions are: medium of exchange unit of account store of value Historically many things served as money. For example, at island ...


1

Every equation is just a sentence written in logical abstract language. Hence, to interpret it you just need to correctly read it out. The following sentence: $$π= E[π] + \frac{1}{\alpha}(y-\bar{y}) +v,$$ just says that inflation $\pi$ positively and linearly depends on people's expectation of what the inflation is ($E[\pi]$). It also positively and linearly ...


4

To avoid confusion inherent in colloquial expressions, it is convenient to define and analyze expectations and forecasts using mathematics and statistics. An expectation is then the expected value $\mathbb{E}(X)$ of an underlying random variable $X$. It may be unconditional or conditional, usually the latter, and we can make that explicit: $\mathbb{E}(X|I)$ ...


3

Venezuela changed its currency 4 times since 2008. VEB, VES, VEF plus another denomination with a change in iso code mentioned in the other answer. Changing a currency changes nothing. Changing behaviour would. However, if your child didn't behave for years, you don't trust your loved one just because it put on a fresh pair of pants. Same for countries. What ...


3

I'll try to translate the argument of Hansen's original (1985) paper Let $h_t = \alpha_t h$ be aggregate labour supply at $t$. First define aggregate leisure $\ell_t = 1 - h_t = 1 - \alpha_t h$ which gives: $$ \alpha_t = \frac{1 - \ell_t}{h} $$ Then the instantaneous utility function can be written as: $$ u(c_t) + \alpha_t (v(1-h)-v(1)) + v(1) = u(c_t) + v(1)...


2

Assume there is a solution where $ Y, K, C$ all have constant growth rates. Impose that solution on Euler and you will have $Y/K$ is constant i.e growth rates of $Y$ and $K$ are same. Use the production function and you will have growth rate of $Y = \gamma_x + n $ where $n$ is the growth rate of $N$. Then use the budget constraint (replacing $I$) and you ...


0

The expectation refers to reality, your forecast is your guess about reality. When you roll a dice the expectation is $3.5$, if you always forecast $3$, your forecast bias will be $0.5$. If the inflation on average rises by $3\%$, but you predict that it rises by $2\%$, your forecast bias is $1pp$. We usually cannot know the real expectation and, hence, the ...


4

You got to the quadratic equation $$ \lambda^2 - (\rho - n)\lambda + \frac{c^\ast f''(k^\ast)}{\varepsilon} $$ The discriminant is given by: $$ \Delta = (\rho - n)^2 - 4 \frac{c^\ast f''(k^\ast)}{\varepsilon} $$ So the two roots are: $$ \lambda_1, \lambda_2 = \frac{(\rho - n) \pm \sqrt{(\rho - n)^2 - 4 \frac{c^\ast f''(k^\ast)}{2}}}{2} $$ As $f''(k) < 0$ ...


5

Introducing new currency won't help if the underlaying problems are not addressed. In fact as reported by AlJazeera: Venezuela introduces new currency, drops six zeros So they are already introducing new currency, but this won't really stop inflation unless the underlaying issues are addressed. Introducing new currency just 'resets' the number of zeros on ...


0

Forecasts are based on data that's tangible prior to the event you are forecasting. Forecasts also are for a specific day in the future. Expectations can also be based on past data however with expectations the person who is 'expecting' 100 units of XYZ can also manipulate or create or do or not do something that would cause the expectation to be what it is....


-3

The Blame is in the FED. First of all is important to know about one of the more important theories about economy Austrian Business Cycle Theory (ABCT), this was proposed by Ludwig von Mises and the Nobel prize Friedrich A. Hayek, in their books "Money and Interest" by Ludwig von Mises, and "Prices and Production and other goods" by Hayek....


1

It should be (Nominal Price for Selected Year)*((Index of base year)/(Index of selected))


2

As pointed out by James Wattam, it is possible to interpret price level falls 10% in 2019 as $$ \frac{P_{2018}}{P_{2019}} = 100\% + 10\%. $$ I agree with you that the interpretation $$ \frac{P_{2019}}{P_{2018}} = 100\%-10\% $$ makes more sense. The question comes down to what the writer of the text considers the base year.


2

Liabilities in 2018: \$90 million Liabilities in 2019: \$90 million Price level falls 10% from 2018 to 2019, implies 1 2019 dollar is worth 1.1 2018 dollars. "exchange rate": 1.1 2018D/2019D \$90 million 2019D * \$1.1 2018D/2019D = \$99 million 2018D


1

It is not, in general, possible for a country to hit more than one nominal target. If a country wants to peg their currency to another currency then they give up control of inflation, if they want to control inflation then their currency will need to float. A country has to decide whether they want their currency to be worth a certain amount of some foreign ...


-1

The bank being willing to lend you a million dollars implies that others are saving enough to finance your investment. The bank won't lend to you unless others are saving because you will spend the money in your account. This means the bank will no longer owe you, but owe other banks instead. Other banks won't accept the loan your bank made to you as a means ...


0

This doesn't require regulation in order to be feasible. When a bank makes a loan it adds to the borrowers deposits on its books. The borrower will spend the borrowed deposits on whatever they needed the loan to buy like a building or machinery. This spending will involve the lending bank transferring assets to other banks, the banks of the borrower's ...


3

They just create them ex nihilo. People sometimes say central banks print money, that is not literally true for every central bank (not for Fed since in US money is printed by the Bureau of Engraving and Printing, nominally under the Department of the Treasury. However, most of it is on orders from Fed so they can supply banks with it – see Fed explainer ...


1

My suggestion would be to review the entry on Inflation by Lawrence H. White in the Concise Encyclopedia of Economics, particularly the part where he gets into the dynamic form of the equation and its uses.


4

Surely there is an element of tautology here? It is tautology only in a way that within its logical system it is always true (i.e. following the definition of tautology from pure math). However, it is not a tautology following rhetorical definition of tautology (used in propositional logic) as a statement that refers to itself repetitively (e.g. MV=PY is ...


1

Most OECD countries have Input-Output Account tables as part of their economic statistics publications. For the U.S., you can find them here at the BEA's website. I'm not sure that they will be as detailed as you hope, however.


3

Capital in economics normally means machines and tools used in production. However, confusingly the national accounting uses the accounting terminology where capital just means: Definition: Capital refers to the financial resources that businesses can use to fund their operations like cash, machinery, equipment and other resources (source). The accounting ...


4

Despite the fact that I am tired of reading paper's on natural experiments, there is one contribution in this field that captured my attention. Not only the topic is fascinating (Switzerland offered up to two years of income tax exemptions to its inhabitants), but also because the results are quite surprising: almost no behavioral change occurred. Here is ...


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