16

FooBar is quite right that unless you expect GDP growth to stop, fixed nominal supply currencies will lead to deflation. A moderate degree of currency inflation serves a number of useful functions in the economy. The most obvious are: It induces people to spend their money before it loses its value. In a deflationary environment there is an incentive to ...


12

"Worth less" than before - yes, that's exactly what inflation does. "Worthless" - not quite. No percentage-based reduction in value can make something worth 0, but there are extreme examples from history of times inflation has spiralled so far out of control ("hyperinflation"), money became worth less than the paper it was printed on, and life savings ...


10

It is a fallacy to conclude that a steady number of coins will give you no change on the monetary value (inflation/deflation). The classical quantity theory of money can be used as a first-order approximation here: $MV = PY$ where $M$ is money, $V$ is the velocity of money, $P$ is the price level and $Y$ is the quantity of real goods. The equation says ...


8

You cannot reason directly from a price change. Prices may increase because supply has fallen or demand has changed. In general we can't distinguish between the two unless we know something about the demand and supply curve in particular and not just prices and quantities. For example, when demand increases (the demand curve shifts to the right but supply ...


8

I'd like to extend Lasse's excellent answer. Fear and uncertainty are driving markets - but they can drive prices in either direction of course. Specifically what's happening here is that the oil markets are pricing in at least two effects. Firstly, the UK is an oil producer, and Sterling's slide means that its oil just got cheaper for other countries. ...


7

The other answers are correct in respect of what would happen if the money supply of a currency was kept constant, however there is nothing in bitcoins to ensure that money supply will stay fixed This is such a common misconception so I'll repeat it. Bitcoins limit the money base, but that does not limit the money supply. The money supply is the money ...


6

Usually, when people use non-equidistant axis, it is because they want to emphasize some variation more than others. For example, if most of your data is between 0 and 1, but you have one outlier on 100, then an equidistant axis would make it hard to analyze most the variation, because it emphasizes the wrong parts. In this case you have a log-scale, which ...


5

The OPEC scenario is quite well described by a market with Cournot Competition. That is, while collusion would lead the highest total profits to the sum of the participants, each invididual participant would gain by increasing his production a little bit. Without observing the quantity of each participant and proper enforcement, that's the outcome the model ...


5

You can imagine a demand curve continuing through the x-axis as monetary price becomes negative. A negative price can be interpreted as payment to pick up shirts, a kind of subsidy.* That might tempt those who are still unwilling at price of zero because there's still a opportunity cost of picking up the shirt, or because they only wear collared shirts, or ...


4

Consider the politically, ideologically, philosophically and emotionally charged question (let's assume that it is free of framework effects): "If a destitute person asked you for money, would you give some to this person?" There are various answers around the world that reflect and represent different political, ideological, philosophical and emotional ...


4

This question rests on a few assumptions. So let's dig into them. What Malthus Said First, the Malthusian collapse you are referring to is similar to the Malthusian Trap, from whence it derives, so let's look at that. From Wikipedia: In accordance with the theory, cross-country evidence indicates that technological superiority and higher land ...


4

This question as is (October 2, 2015, 15:07 Athens time) should be closed and I voted to that effect. I provide an answer in order to show why it should be closed. As any natural or legal entity, the "Fed" engages in strategic behavior. Strategic behavior is not a priori constrained by moral considerations (and this is why Game Theory has come under fire ...


4

Fear and uncertainty. Stock markets have plummeted. Currency has plummeted. Noone really knows what is going to happen and hence economic future development is very unsure. Thats whats driving the price at the moment.


3

As it has already been explained, it's a logarithmic scale (also called log scale for short). The distance between values doesn't depend on their linear difference, but on their relative difference. The distance between 20 and 40 is the same as the distance between 40 and 80 or the distance between 60 and 120, because 40/20 = 80/40 = 120/60 = 2 or a 100% ...


3

Snoram is correct. Price level is a just that, the relative level of prices. Inflation/deflation is the act of moving up/down price levels. The inflation rate is the difference in price levels from one time period to another. I.E. Year 1: Price level = 100 | Year 2: Price level =105. There was inflation in the economy (because price level increased). The ...


3

Inflation can be seen as a tax on (uninvested) savings really more than anything else. In 100 years, a McDonalds Hamburger will cost \$100 (say), but you'll also see a nominal minimum wage of $400 an hour. However, your $1000 savings account (without interest) that would today buy you 100 hamburgers, would in 100 years buy you 10. Interest of course will ...


3

The consumer price index is used to measure the rate at which prices increase. It is calculated by taking a basked of common goods that people buy all the time (groceries, appliances, etc.) and looking at how their average prices change over time. Suppose we are calculating the CPI using a basket of goods that contains only cinema tickets. Last year a ...


2

over the past few months, the oil harvested from fracking had come onto the market reducing the price of gas. Obviously, this makes no sense insofar as the oil harvested from fracking displaces oil harvested by other means. Absent changes in supply or demand, the price of oil has to rise at the rate of interest. The development of a new extraction ...


2

This started as a comment on Stephen Landsburg's answer but was getting too long for the comment format. When a new supply of oil is discovered, it increases the potential new supply. This will cause prices of oil fields to fall (if everything else is constant). However, gasoline costs are determined not by the future supply but by current supply. ...


2

To appreciate why OPEC can´t do this now, we have to understand a little better why they were able to do it in the 1970´s - temporarily at least. The received wisdom on the 70´s crisis is a little oversimplified. There are two key things going on at that time, one was that US oil consumption was steadily increasing throughout the 60´s, which is what led to ...


2

Because nothing is really free. Even if the seller is not charging money for the product, you have to go to some time and effort to get it. Once you get it, it will take up space in your home. It may require maintenance. If someone is giving things away for free at a table, you may have to listen to their speech about whatever to get the free item, and you'd ...


2

There isn't any good way to rehabilitate the quantity theory when there are other currencies that are perfect substitutes for dollars - so in that sense, there isn't any answer to Landsburg's question. Indeed, the irrelevance of the quantity theory under perfect substitutability - which has always been theoretically clear - has become a practical reality ...


2

Except of the purely descriptive aspect, "elastic demand", or more accurately, regions of the demand schedule where demand elasticity with respect to price is higher than unity, in absolute terms, is linked to the basic monopoly theory, since the monopolist maximizes profits at a point of the demand schedule where "demand is elastic". Define the demand ...


2

The question is not asking what you solved. You literally gave how much income would be needed by buy $90$ bottles at the new price. What the question is asking is basically "calculate the income effect, and add it to the original income, in order to cancel it out". That is, you solved for what he would have bought if there was no income or substitution ...


2

Notice that if you plug in $P=15$ into either of the $Q(P)$, you get $$Q(P) = 700-40P = 700 - 40 \cdot 15 = 100$$ $$Q(P) = 400-20P = 400 - 20 \cdot 15 = 100$$ So you can take the exercise further and see that when $P < 15$, then $Q > 100$ (notice the direction of the inequality is changing; the more expensive a good, the less consumers buy of it)


2

The closest thing to an answer I could give to this is that it is not in the Federal Reserve's interest to lie, particularly about the targeted inflation rate. Businesses would catch on to what the state of the economy is and the Federal Reserve would lose credibility. Too much discretion in the Federal Reserve's policy leads to Ramsey's Time Inconsistency ...


2

Autocorrelated is the opposite of independent, which is a term easier to understand (and explain). If you throw one die, the probability of getting the number any number is 1/6. If you throw it again, the probability of guessing the result number is 1/6. If you do it again and again and again the probability of getting it right is always 1/6 (provided that ...


2

you cannot compute real exchange rates based on the data you have. What you can do, and what is often done (not sure what it is good for though) is to use relative PPP to calculate changes in RER using some base year. The OECD publishes some statistics on P*/P, you could also use that, although I am not sure what methodology they use. In practice, you ...


2

Consider an exact same product, say an umbrella, which is both imported from China in India and locally produced. The reason why the Chinese product is cheaper compared to the local one could be related to differences in productivity or total factor productivity. The Chinese product could be relatively cheaper because Chinese firms use better production ...


2

Try to give a look at what happens to inflation's IRF. If it stays positive for the whole horizon of the IRF then simply prices have increased over time at the inflation rate. I guess that any non-degenerate price level (nominal!) is compatible with such model structure, as its system is written down in growth rates, as that's what loglinearised variables ...


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