Ask an Economist
Does the market provide too many or too few products, relative to some social optimum benchmark? It turns out that this question does not have a simple answer. It depends on whether or not consumers are well (perfectly) informed about products'...
Your wealth in terms of home currency will increase whereas in terms of foreign currency it will decrease. If your home country prices remain the same, it means your real wealth has also increased. So, broadly, it depends on when and where, home...
China’s total trade (exports+imports) as percentage of GDP is about twice that of the US. In this sense, the US is a relatively closed economy and therefore its monetary policy is (and ought to be) more domestically oriented. Second, Chinese...
ISU Extension has created tools to explore the potential benefits/payments from the programs in the 2014 Farm Bill. These tools are available from www.extension.iastate.edu/agdm/...
Yes, large banks can in principle borrow funds at close to 0% from the FED and turn around and invest them on higher paying US bonds. But, when large banks do this, they push up the market price of these US bonds (being large players in the...
I understand the basics of measuring GDP based on the product, income, and expenditure approaches, but I am stuck on a simple question: how are household savings accounted for using the expenditure approach if they are not invested?
In other words, say I earn $100, spend $98, and deposit $2 in a non-interest earning savings account. If the $2 (along with a lot more money, presumably) gets lent out to a company that builds a factory, then clearly that would be investment, but what if it just sits in the savings account? Does that count as “residential investment”?
There are two components to investment in the national income identity. In addition to expenditure on capital equipment and buildings by firms, investment also includes additions to business inventories (goods that firms did not sell). So if you...
You are missing a key difference between the federal budget deficit and the public debt level. The deficit shows by how much the federal government expenditures exceeded its revenues in a given fiscal year; the deficit is measured per year. In...
Does that make sense? My understanding is that any fiscal year you end up with a deficit means you're borrowing more to make up the shortfall, and thus adding to the accumulated debt. Or are there technical aspects during the year that do otherwise?
Given that the standard definition of government spending does not include the repayment of maturing debt, your understanding is correct. In particular, during the three years of running the deficit as planned, the Canadian federal government...
My confusion is how this is reported (at least in public spheres) with governments. When we talk about a government's deficit, we seem to be including operating shortfalls (Opex or where existing programs spending is greater than revenues) plus Capex.
Say my government is running a $10B deficit and no change occurs in revenues and in program spending in the next fiscal year. If they propose a new infrastructure project (say railway) that will cost $$20B starting that year, what would be the deficit? I expect the $20B (assuming it actually stays at that level) would eventually be added to the accumulated debt but only the amortized allocation of it would be recorded as a part of the deficit.
Is that how it's supposed to be? Is that what they actually do? It seems the press never makes a distinction between these, which only confuses the public and obfuscates debate about spending.
In your example, the infrastructure investment of $20B will be included in the next fiscal year expenditures in the full amount. Thus, the deficit during the next fiscal year will be $10B + $20B = $30B. Also, the debt level at the end of the next...
Let me answer the last question first. The markets are controlling the prices, based on supply and demand. So, depending on how you want to look at it, either everyone or no one is controlling the prices. Let’s dive into the factors that have...
Thanks for your very interesting question. GDP measures the market value of production. It is not intended to be a measure of aggregate well-being but it is often used as such. Economists generally recognize that GDP is an imperfect indicator of...
The implementation of monetary policy – e.g., how exactly a central bank raises interest rates – differs across countries and even over time within countries. These differences imply there is not a single answer to your question, but for...
The Federal Reserve has a long history as the nation’s central bank. While there have undoubtedly been many changes in the U.S. economy, banking, and the financial sector since the passage of the Federal Reserve Act in 1913, much of the structure...
There is something very basic and fundamental about how the stock market works that I have never understood and always wondered about.
I understand that a company issues a certain fixed number of shares so the value of those shares are subject to the law of supply and demand. However, it seems like, at any given moment I, and anyone else, can buy or sell any number of shares at the current stock price. So what is the actual mechanism that determines the change in stock price?
If I look at the stock price of company X and see it is selling for $100 per share I, and anyone else, can decide to buy one share at the market price of $100, or one million shares at the market price of $100. So what actually makes the stock price of company X actually move up to $100.01 per share or down to $99.99 per share? It doesn't seem like the stock price would move up unless all available shares were already purchased, or down unless there were people willing to sell shares for less than the market asking price at any given moment.
The answer is that stock prices are indeed determined by supply and demand. If you see no change in price when you trade, it is because the amounts you are trading are relatively small. If you try to buy or sell a particularly large amount at one...
If possible could you folks better describe the raw product that comes from the ground as sold, vs the raw product that is transformed (in some way) then sold?
I think of wheat as a resource. I think of cereal as a commodity. Is that right?
Here is a definition that I found on an OECD website https://stats.oecd.org/glossary/detail.asp?ID=1740. It is as good as any definition I have seen.
The...
I always thought that it was the other way around: the closer you are to the departure date the higher the price. Airlines have some market power and use pricing overtime as a way to second degree price discriminate: Consumers who plan long ahead...
In discussing the impact of economic policy on aggregate demand and the balance of trade in open economies, international economists often talk about two types of (non-monetary) policies: “expenditure reduction policies” and “expenditure...
I understand why deflation is debilitating, and why the zero-bound inhibits monetary policy. Why can't central banks just print money, and turn it over to their national governments to generate inflation? As a bonus, those governments would then have more money to spend - presumably to the benefit of their populations.
I do understand that high inflation carries its own problems (I remember the 1970s) but could a central bank facing perennially low interest rates not just run the presses until inflation began to approach its target level?
In the US at least, financing Govt expenditure/budget deficit by using more Federal Reserve notes is not an “usual” option (the way it is in India for example) is primarily because the central bank’s independence from the Treasury and the Govt’s...
There is a wonderful new technology that is able to vaporize garbage (also known as "Municipal Solid Waste", or MSW). The output of this process consists of only three things: Synthetic gas, a metal alloy, and a glass-like slag. All three have commercial value. No pollution is created in the course of this transformation.
As you may know, markets for energy and metals are in the doldrums. The falling prices indicate a reduced utility for these commodities, and that creates a headwind for the sale of this new technology.
On the other hand, citizens hate landfills more than ever. No one wants to live near a garbage dump, so doing away with landfills has high utility.
My question, therefore, is this: How do I compare the falling utility of process outputs (the syngas, metal, and slag) with the increasing utility of eliminating landfills altogether? The physical outputs can be priced in the open market, but civic satisfaction is hard to measure.
Many thanks for any guidance you might have.
When trying to quantify "civic satisfaction," we need to determine what a community is willing to pay, in dollar terms, to remove the landfill. Typically this is done with randomized surveys, but unfortunately it appears that economists have not...
No. The world consumes about 100 million barrels of oil per day. US consumes 20 million, while China consumes 10 million barrels per day. Thus, whether China is in a recession or not, its economy will not have a significant effect on the world...
Thank you for your question. Yes, we have recently developed a new Iowa Land Value web-portal which allows you to visualize the trends in Iowa land values at the county, district and state level. It is available at...
First of all, I want to make it clear that, when a central bank increases its FX reserves, it supplies local currencies and increases liquidity in the money market. But this is certainly not the reason that China’s banking system grew so much....
Currently, Saudi Arabia’s foreign exchange reserve is about $600 billion. Saudi’s oil export is about 8 million barrels per day, or about 2800 million barrels per year. At $100 per barrel, their revenue from oil exports would be about $280...
1) I'm talking here about rich countries with deflation or very little inflation, so a bit more of extra money in the market wouldn't be bad (it would be up to them to calculate this amount)
2) The money could be give to the poorest in the society. This money would go straight back to the economy since lower classes save very little (usually they spend the extra money or pay debts). So instead of the trickle down economics (which usually doesn't work) we would have a trickle up economics. Australia did it just after the 2008 GFC and it was one of the only developed countries that didn't go into recession. (although it took the money from its budget).
3) The QE amounted in trillions of dollars and not much of this money went to the real economy in terms of investment and the creation of jobs. A lot of it created an inflation of assets such as the growth of the stock market in US, a housing price hike in world cities such as NY, London, Sydney, LA and so on and even Art prices exploded...but not much to the real economy.
4) Corporations don't need more money in the form of tax breaks and cheap loans (they are swimming in cash). They need consumers to consume! So they know they have a market and be confident to invest in new projects. And with the squeeze of the middle class in rich countries, we are not consuming as much as we need to keep the economy growing.
5) I don't know how much money would be enough to kick start (or improve) the economy of Japan, Europe and US without a dangerous inflation but it could be done in 4 installments along the year to the poorest families. Image something like 4 x 200 USD in one year. This money would make a big difference for low-income families and would flood directly to the economy...and companies would know that the money would come and they could prepare themselves.
6) The dollar is pretty strong now and it's becoming a problem for the US and the rest of the world. So printing a bit might not hurt much.
7) A few years ago negative interest rates were seen as something out of this world. But now Japan, Switzerland and Sweden have it. We just need to think out of the box to improve this economy in a more inclusive way....no middle class, no economy and no democracy!
8) Obviously, this wouldn't work with developing countries with weak currencies and inflation...but for US, EU and Japan...why not?
There are several issues here. First, the US central bank, the Fed, is an independent monetary authority and does what it thinks best to keep inflation and unemployment low. They cannot be "asked" to print more money or change interest rates....
My question is: would it be economically feasible if the United States changed its tax code to allow all citizens to deduct 100% of all monies paid towards student loan lenders (interest AND principle)?
Responsible tax payers could see a lower tax bill (something we all know conservatives AND most liberals love), or most likely a refund (even better!, and the American public would have a greater incentive to pay down the trillions in student loan debt we currently owe.
I am what people are calling a millennial. I am a liberal. However, I do believe that nothing is free. But after graduating in 2008, my loans quickly rent into repayment long before I earned the chance to pay them off. Almost a decade later, my wife and I have a combined student loan debt of just about $100,000. And that WITH going to a cheaper public in-state school!
Anyways, I digress. I just had this notion, and since my education is more in marketing, I felt I could let the economists tell me if I'm flat out crazy, or if it was a viable plan.
This is a great question. Currently interest (but not principal) on student loans is deductible within certain limits. The maximum deduction is $2,500 and the amount of the deduction begins to diminish once your Modified Adjusted Gross Income...
Pages
