# Tag Info

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What you're describing is a change in the capital account, not in GDP. They're related through the balance of payments, in that if a country is running a current account deficit (usually arising through being a net importer), they'll have a capital account surplus (i.e., foreigners will on net buy more domestic assets or domestic owners will be net sellers ...

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The seminal academic criticism of dollar cost averaging on many specifications of economic conditions is A Note on the Suboptimality of Dollar-Cost Averaging as an Investment Policy (Constantinides (1979)). You might also be interested in these papers: Dollar Cost Averaging is an investment system that is widely advocated by brokerage firms and mutual ...

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From the Wikipedia article: Economists describe a consumer as "prudent" if he or she saves more when faced with riskier future income. This additional saving is called precautionary saving. For risk averse consumers with thrice differentiable utility $u^{\prime\prime\prime}>0$ is a necessary and sufficient condition for consumers to save more for ...

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First we must address the nature of savings. Savings are not bad or good per se. It depends on the context. It is true that in the short run, increased savings will lower consumption, thereby lowering GDP. However savings also increase investment, which in the long run increases economic growth. Therefore, the optimal savings rate is found by solving the ...

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Government can have savings while having deficit because we are just talking about savings not net savings. For example, imagine that government has zero tax revenue $\\\$10$spending and$\\\$10$ of public investment. In this case the government is running deficit of $\\\$20$yet it is also saving through investment. Due to the deficit being larger than ... 4 The investment ($I$) equals savings ($S$) result is derived by Keynes just from national identity, as a result it just hold by definition. Keynes in the passage starts with the simplified version of national identity that omits government. That is: $$Y=C+I \implies I=Y-C$$ And simply solves it for investment. The solution of investment tells us that private ... 4 This left me wondering what happens to the wider economy when people decide en masse rather than spending their disposable income on consumer goods/services, to instead pay down their debt and save/invest? tl;dr: Answer depends on the situation/time horizon you are talking about. In long run increasing saving and investment will have no negative impact on ... 3 The Wikipedia article has several different quotations over time, though I would state the claimed paradox as a variant of (2), possibly something like an increase in the rate of saving can lead to lower total savings perhaps illustrated with a graph something like which suggests that the paradox seems to depend on the the combined relationships ... 3 It was Alfred Marshall's doing, but based on a premise that still prevails in many parts of Economics: if prices are assumed totally elastic, then, although it may be the case that they are taken as given by the individual buyers or sellers, at market level it is quantity that determines price. So price is indeed the dependent variable, if you care about the ... 3 To clarify the first scenario: you assume Joe can buy this car. However, Joe has to either earn an income (and therefore, produce something himself) or he has to dissave. In the first case, Joe has produced 500 output and earned an income of 500. He spends his income on a car, but Amanda saves the money. As is clarified in other answers, Joe's output goes to ... 3 First it should be clear that this is an (ex post) national account equality:$Y=C+I+G+NX$, the private saving is$S_p=Y-C-T$and public saving is$S_g=T-G$thus you have$S_p+S_g-I=NX$. Later you see in this book that the net exports, which depend on the exchange rate, are exactly equal to the Net Capital Outflow. Why? because an export is like a capital ... 3 At its simplest, you just look at the cost of capital: if the household would have to borrow to pay the debt, then what's the borrowing rate? If they are currently saving, what interest rate would they forego by spending on the retrofit instead of saving? The benefits of retrofit usually extend beyond the simple savings on energy bills, though. When it's ... 3 The question is belied by some basic misconceptions. Just to list a few: The comparison of GDP in nominal terms and implied statements about growth. The definition/measurement of GDP (where saving is apparently not part of GDP). The (completely) arbitrary prices of goods being prescribed for this economy. The meaning of equilibrium. John produces 100kg ... 3 This idea is known as the Fisher separation theorem. Without the investment opportunity to transfer$h$units of present day value into$w(h)$units of future value, the perfect credit market gives us the intertemporal budget constraint of $$c_1 + \frac{c_2}{1+r} = y,$$ which can be represented by a straight line. Without knowledge of the consumer's ... 3 Investment ultimately comes from households through savings. From a macroeconomic perspective savings is equal to to investment ($S=I$). Investment comes from income because saving is portion of income that is not consumed. For example, if your income is$\\\$1000$ and you consume $\\\$700$of it the$\\\$300$ you are left it is by definition saving and ...

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Just to add a little more intuition, recall the difference between a small open economy and a closed economy. A closed economy must consume its endowment. A small endowment, however, can borrow and lend from the rest of the world. This allows it to engage in intertemporal trade. When it borrows from the rest of the world, it does so to either increase ...

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Think about the permanent income hypothesis. People's spending is dependent not just on present income, but also the future stream of income. A deflation usually indicates a recession. The central bank is trying to optimize monetary policy subject to a short run Phillip's curve. $$\min_{u, \pi} V(u, \pi) = -(u^2 + \pi^2)$$ such that u = u^* + k(\pi^e - \...

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Yes, this is very counter-intuitive and confusing. However, there is an interesting explanation involving graphical analysis of demand and supply i.e. why swap axes? . I think, the explanation in that link may offer you some elements of answer.

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At the level of an individual household it can be rational for poverty and savings to coexist. There are degrees of poverty. In terms of food, there is having a somewhat varied and adequate diet but with meat only once a week, there is having a monotonous, entirely vegetarian but adequate diet, and there is going hungry. In terms of education (in a ...

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Your question is essentially about precautionary savings, i.e. the response of savings to risk. What determines precautionary savings is the coefficient of relative prudence: $CRP=-\frac{U'''}{U''}C$, where $U$ is the utility function, $C$ is consumption and primes denote derivatives. As we always have decreasing marginal utility in economics, i.e. $U''<... 2 Tax falls out of the equation. Based on your model, tax can still be in the equation, but it is hidden inside of your$C$and$G$. First, as you mentioned, if consumption is not constant, then adjusting the tax rate will change$C$(lower$T$higher$C$). But the tax rate is also imbued in your$G\$- the government must have some budget. In a balanced ...

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I think that part of the blog post is just saying that savings may not equal investment in capital immediately, because there can be a delay caused by firms accumulating inventory. But firms can't continue to accumulate inventory indefinitely, so this is only a transient phenomenon. Sooner or later, inventory will reach a new equilibrium and savings will ...

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The accounting identity assumes that anything saved is an investment, i.e. something will be done with that saving in the future. It's a bit circular, I know. It's not a lagged model, i.e. there's no explicit indexing by time of the variables, unlike (e.g.) in the Hansen–Samuelson model, which uses discrete time. There are also macroeconomic models with ...

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It may be more "profitable" to present your analysis here for detailed discussion. It is particularly relevant to tell us what sort of retrofit you are considering (Insulation upgrade? Triple-pane argon windows? Tankless water heater? Solar plus storage?) as well as the particulars of your local energy market. The prices you face as a consumer depend on ...

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At the national (macro) level in a closed economy, total savings must equal total investment. Total savings are total output - total consumption. If there is no "savings technology" with a depreciation rate below 100% in your economy then there can be no savings. I.e. there has to be a way to store things without losing 100% of what you store. Can John ...

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You dont even have to have money or other people to make transactions with to save. In economics savings is a proportion of your output/income that is not consumed. For example, you can have a Robinson Crusoe on an island all alone and he can save. An example, Crusoe will collect 10 pieces of wood uses 5 for fire and other 5 are left for later. That is by ...

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The ideas are very similar and functionally virtually equivalent although there arguably is subtle difference. For example, Romer in his Advanced Macroeconomics, which is widely used intermediate macroeconomics handbook, calls both the life cycle hypothesis and permanent-income hypothesis just permanent income hypothesis. To be more specific he says Thus ...

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What you want is the Flow of Funds (which measures transactions and levels of assets and liabilities), not the National Income and Product Accounts, which primarily measure output and (mostly, though not entirely, physical) capital stock.

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The role of 45 degree line while showing a consumption function is that the 45 degree line translates the values on x-axis to equal values on y-axis. The consumption function is drawn on an income and aggregate expenditure plane. Hence the 45 degree line shows consumption + savings which is aggregate output or aggregate supply or income. The other way to ...

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If household debt rises, it means that more households consume more than they earn. This is the same as saying they save less. This means that the causal channel in your quote is by definition. Now one may ask why do savings decrease in a period of growth. I could imagine two causal channels. It could be that growth is a consequence of low interest rates, ...

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