Archive for the ‘Economics’ Category

MacroEconomic Models

December 17, 2013

I found a good free macro econ text. It is Intoductory Macroeconomics, by Povey, and is available at users.ox.ac.uk/~sedm1375/book.pdf‎.

For me, what makes it excellent is that it presents the macro economic models in their succinct mathematical formulation. The classical and Keysian are there, the first being long run and the second being short run.

As long run economics goes, there is no imbalance or market inefficiencies. The First Theorem of Welfare Economics holds, perfect cometition. The labor, money, and financial markets all clear.

The basics of this Classical Economic model allows for the equation of exchange, MV=PQ which is also GDP=C+I+G+NX.

A consequence of the equation of exchange is that at long term equilibrium and efficiency afforded by the Classical model, prices are a function of the supply of money, specifically the countable supply in circulation. MV=PQ is an identity. All money spent on Q, accounted for by P, is all money in M. It is also all income spent on Q. As such, prices are always a function of the money supply, given that Q is set. This is what accounts for inflation, an increase in the money supply without a corresponding increase in production.

Another consequence of the money supply on prices is that only after-tax, disposable income, has any effect on prices. In the long run, equilibrium to equilibrium, the tax level has no effect on the standard of living. Standard of living, Q/l, quanity of goods per person or labor hour, is a function the labor employeed and the efficiency of that production.

This should be readily apparent. All that increases and decreases in taxes do directly is change the money supply in the equation of exchange. There are Keynsian implications of changes in taxes, but these are short run impulses and not a consequence of the classical economic equilibrium model.

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Considerations in Economics.

March 19, 2010

I received the following feedback.

Bravo, well worth the read – all 3 three posts – regardless of where one stands in relation to this subject.   Very well reasoned, logical, easy to read and follow, concise and insightful. You would make an outstanding college economics professor, or author of textbooks for dummies… thanks for the education.

So, I figured, what the heck…  I’ll start a blog.

The attempt, here, is to present empirical evidence or deductive reasoning in economic topics.  For the most part, I look towards articles and comments for idea and opinions in economics.

For instance, in an article “What Is Money and How Do You Destroy It?“, it is reported that “Mitt Romney says Mr. Bernanke’s policies have “over-inflated” the currency.”

I ask, can it be shown to be true?

My response is; “Mitt Romney is clearly wrong. Bernanke took office in Feb 2006. From 2000 thru 2005 the average monthly percent change in the CPI was 0.22%. From Feb 2006 thru Nov 2011, the average monthly rate of change for the CPI has been 0.21%. While the average monthly rate of change (linear regression giving the rate of the rate of inflation) remained flat over the period of 2000 through the end of 2005, since Bernanke took office, the monthly rate of change has trended downward. Perhaps Romney’s error is that he starts from an oversimplified hypothesis and comes to a conclusion without actually checking the facts. But, as I look at the CPI data now, it is clear that the Fed policy has been anything but inflationary.”

But, Mitt isn’t really talking about price inflation. He is speaking of monetary inflation. So I haven’t really proven him wrong. Still, without price inflation, we really don’t care about monetary inflation. So, when Mitt says, “Mr. Bernanke’s policies have “over-inflated” the currency.” He isn’t, in fact, right. He isn’t right because there is no basis for concluding that the currency is “over-inflated”. And, without proof that it is, then it isn’t. There is the rub, Mitt makes a statement that is not true but cannot be proven false. It will be true if and only if, at some later date, we get price inflation. Then we can say that Bernanke had over-inflated the currency. But, at least for now, we cannot say that he has.

The space available in commenting is limited.  And, it lacks the ability to present the graphs which help demonstrate the facts.

So, this blog is a place where I can expand on these considerations in economics.  It contains articles on what I can show, either empirically or with some deductive reason.