tag:blogger.com,1999:blog-2546602206734889307.post198851998180611879..comments2024-03-28T04:29:22.717+00:00Comments on mainly macro: Savings Equals Investment?Mainly Macrohttp://www.blogger.com/profile/09984575852247982901noreply@blogger.comBlogger45125tag:blogger.com,1999:blog-2546602206734889307.post-59339920471644520062018-02-25T23:07:23.811+00:002018-02-25T23:07:23.811+00:00My text book gave the following example when descr...My text book gave the following example when describing how saving equals investment is an alternative way of looking at the equilibrium condition in the goods market. Imagine a one man economy, call it Robinson Crutso economy. Any rabbit that he doesn’t kill for dinner, he saves for breeding more rabbits in the future, and by doing so invests. Thus investment equals saving. The difference between this case and a complex economy, is that it is up to households and the government to do the saving, and up to firms to do the investment. Anonymoushttps://www.blogger.com/profile/10764651152013758736noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-59184409545448345252017-05-17T08:13:03.146+00:002017-05-17T08:13:03.146+00:00The purpose of Fiscal Policy is to wipe out inflat...The purpose of Fiscal Policy is to wipe out inflationary or deflationary gaps. If C+1+G is too high, we have an inflationary gap and we raise taxes to shift the new C1+C2+C3 schedules downward, thereby wiping out inflationary gap. Please explain and show how.Anonymoushttps://www.blogger.com/profile/03772485466337995029noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-20530145545952534062017-05-17T03:49:45.276+00:002017-05-17T03:49:45.276+00:00If I decide to save an extra dollar, my savings go...If I decide to save an extra dollar, my savings goes up by that amount. If anyone decides to save an extra dollar, income falls and savings does not rise. Kindly explain.Anonymoushttps://www.blogger.com/profile/03772485466337995029noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-7381975703739995942016-07-26T05:31:42.463+00:002016-07-26T05:31:42.463+00:00I finally found that the relationship of total out...I finally found that the relationship of total output = total income = total expenditure is wrong.<br /><br />In fact, total expenditure must equals total income(revenue), they are both price times quantity(P*Q), but they should not always equal to total output.For a given price, when quantity supplied exceed quantity demanded, total output is P*Qs, while total revenue or total expenditure is P*Qd. But this should not happen in microeconomics, because we always assume quantity is determined by the smaller one, so the quantity of output is Qd. Total output = total income = total expenditure is right in microeconomics.<br /><br />In macroeconomics, output is always determined by Qs, so total output does not equal to total revenue or total expenditure. To equalize them, they said P*(Qs-Qd) is inventory investment, so total expenditure equals to total output again. But how can total revenue equals to P*Qs too? I don't know how but I think they may use some accounting skills to make P*(Qs-Qd) become the extra revenue. But the extra expenditure and revenue on P*(Qs-Qd) is simply unrealistic.Anonymoushttps://www.blogger.com/profile/00312423992390201878noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-89222645658148950802016-07-14T08:56:28.536+00:002016-07-14T08:56:28.536+00:00Desired savings equals to desired investment, whic...Desired savings equals to desired investment, which means aggregate quantity demanded equals to aggregate quantity supplied, is the condition of good market equilibrium. This condition needs not to hold all the time because of unplanned inventories. While actual savings equals to actual investment is just an accounting identity.<br /><br />In fact, the savings-investment diagram shows the real interest rate to clear the goods market(desired savings equals to desired investment), for a given output, consumption function, investment function and government expenditure.<br /><br />For example, private consumption decreases, the savings-investment diagram shows that real interest rate should decrease to clear the goods market, holding output constant for long run analysis. But why the real interest rate would decrease? If we use IS/LM model, it is caused by decreasing in price level which shifts down the LM curve. So, we found that increase in savings will finally boost investment. And I found that the result would be different if there is Pigou effect.<br /><br />To sum up, desired savings equals to desired investment is just an equilibrium condition.<br /><br /><br /><br /><br /><br /><br /><br />Anonymoushttps://www.blogger.com/profile/00312423992390201878noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-11305071415716753912016-07-14T08:23:07.965+00:002016-07-14T08:23:07.965+00:00No, if the production is services, there is no way...No, if the production is services, there is no way to have increase in inventories.The output must go down, because no one buys the services and the services can't be produced. After that, actual savings still equals to actual investment.Anonymoushttps://www.blogger.com/profile/00312423992390201878noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-52698174259902835832015-10-22T21:36:45.326+00:002015-10-22T21:36:45.326+00:00Searching for the term depreciation on this page, ...Searching for the term depreciation on this page, wasn't found. <br /><br />Inventories unsold can depreciate or become obsolete, and unsellable. Thus investment can decline, with no immediate decline in savings. The decline in savings can come in a subsequent reporting period (e.g. by default, wiping out savings), resulting in savings not equaling investment in the reporting period. The fall in savings could come in the next reporting period, or it could be delayed a long time. And so it does not appear that S=I is an obligate identity, at all times.<br /><br />Is this incorrect???Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-74788878235791712522015-01-28T10:11:55.386+00:002015-01-28T10:11:55.386+00:00Please help!!
How does a business make money if F...Please help!!<br /><br />How does a business make money if FIRMS=HOUSEHOLD. Someone said that they will add the interest of the good before they sell the product. And apparently it is not the right answer because it the EQUALITY was not justified. Can someone please explain how it works?<br />Thanks!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-40335118677737862372014-12-26T09:11:58.924+00:002014-12-26T09:11:58.924+00:00ok i'am trying to understand all of the answer...ok i'am trying to understand all of the answer of yours, and could you explained to me ( Recall the saving-investment balance is given as : S + (M-X) = I + (G-T) where S is domestic saving by households and businesses, M is U.S. imports of<br />goods and services, X is U.S. exports of goods and services, I is private domestic investment in capital goods, G is total federal, state and local government spending on goods and services, and T is the net receipt of tax revenues by federal, state and local governments) <br />could anyone explain easy to understand? <br />thanks modern-cikandehttp://www.modern-cikande.co.idnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-34726856957512525552014-11-30T11:21:14.425+00:002014-11-30T11:21:14.425+00:00The subtle distinction between storytelling and sc...The subtle distinction between storytelling and science<br />This post is for economics professors (and the occasional blogger) who appear confused.<br /><br />The I=S discussion is the widely visible monument of a lack of genuine scientific instinct of both orthodox and heterodox economists. In order to make this perfectly clear it is necessary not to accept the familiar premises but to dig deeper. As Keynes already recognized:<br /><br />“For if orthodox economics is at fault, the error is to be found not in the superstructure, which has been erected with great care for logical consistency, but in a lack of clearness and of generality in the premises.” (1973, p. xxi)<br /><br />So, what has first of all to be replaced is this formal description of the economy:<br /><br />“In the most simple model of a closed economy without government, income (Y) = consumption (C) + saving (S), but also expenditure (Y) = consumption (C) + investment (I). So S=I by definition. But here investment includes what is called ‘stockbuilding’ or ‘inventory accumulation’, which includes goods that firms wanted to sell but could not.” (quote from above)<br /><br />Instead:<br /><br />The most elementary economic configuration, i.e. the pure consumption economy, is defined by:<br /><br />(i) Yw=WL wage income Yw is equal to wage rate W times working hours L, (ii) O=RL output O is equal to productivity R times working hours L, (iii) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.<br /><br />For the graphical representation see here:<br /><br />https://commons.wikimedia.org/wiki/File:AXEC31.png<br /><br />At any given level of employment L, the wage income that is generated in the consolidated business sector follows by multiplication with the wage rate. On the real side output follows by multiplication with the productivity. Finally, the price follows as the dependent variable under the conditions of budget balancing, i.e. C=Yw and market clearing, i.e. X=O. Note that the ray in the southeastern quadrant is not a linear production function; the ray tracks ANY underlying production function.<br /><br />If the wage rate W is lowered, the market clearing price P falls. If the number of working hours L is increased the price remains constant, provided productivity R does not change. If productivity decreases the price rises. In any case, labor gets the whole product, the real wage is invariably equal to the productivity, and profit for the business sector as a whole is zero. All changes in the system are reflected in the market clearing price.<br /><br />In the next period, the households save. The result is shown here:<br /><br />https://commons.wikimedia.org/wiki/File:AXEC33.png<br /><br />Consumption expenditure C falls below Yw and with it the market clearing price P. With perfect price flexibility there are NO unsold quantities and NO change of inventory. The product market is always cleared and there is no such thing as an inventory investment. So we have household sector saving but no business sector investment, that is, saving which is given by S=Yw-C is NOT equal to investment I=0.<br /><br />The crucial conclusion is that the business sector makes a loss which is exactly equal to the household sector's saving, i.e. S=-Qm. Therefore, loss (and NOT investment) is the exact counterpart of saving; by consequence, profit is the exact counterpart of dissaving. <br /><br />And this is why almost everything that conventional professors tell their students is false. Household sector saving has never been equal and will never be equal to business sector investment.<br /><br />The general relationship between monetary profit, distributed profit, investment and saving is given by:<br /><br />https://commons.wikimedia.org/wiki/File:AXEC09.png.<br /><br />How could economists get the basics so wrong? Because they cannot tell the difference between income and profit. For the formally correct solution see (2014).<br /><br />Neither the Post-Neo-New Keynesians nor the Post-Neo-New Classicals have solved the profit puzzle and with it the saving-investment puzzle, therefore they are out of science (2013).<br /><br />Egmont Kakarot-Handtke<br /><br />(References do not appear because of space restriction)Egmont Kakarot-Handtkehttp://www.axec.orgnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-58425612475070405752014-11-12T18:15:21.405+00:002014-11-12T18:15:21.405+00:00Morgan, I do believe that economics at its fundame...Morgan, I do believe that economics at its fundamental principle (at least from what I know) is the general redistribution of resources? Allocative efficiency is the goal of economics is it not? And allocative efficiency at its most basic level is the redistribution of economics, not simply 'socialism'Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-67784066117987917992014-02-26T16:37:41.889+00:002014-02-26T16:37:41.889+00:00Dear all,
I am struggling to understand the IS cur...Dear all,<br />I am struggling to understand the IS curve so please check my notes regarding conditions that have to be met and let me know if I got it right:<br /> - Based on fact that aggregate expenditure equals aggregate income is the requirement that planned expenditure equals actual (or realized) income. The idea is that no-one would produce in excess of consumption, if he does not want to either exchange it or invest it. Any overproduction in the consumer goods sector (investment in inventories), necessarily implies that profits of entrepreneurs will have to fall (since they are not capable of selling). This will itself lead to a fall in investment - reducing capacity accordingly. Resulting reducement in output will reduce future incomes based on which savings and consumption will be reduced. The same is true if consumers start this cycle by decreasing the consumption in favour of savings which would lead to increase in business inventories and the whole process repeates. Decrease of incomes and consequently consumption and savings would continue until the surpluses in inventory are depleted, so in the long run investments are made only to capital goods without increase in inventories. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-18046024988550873412013-10-20T05:20:18.920+00:002013-10-20T05:20:18.920+00:00Could somebody answer the questions above and expl...Could somebody answer the questions above and explain the logic behind it?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-46105298730178245232013-10-20T05:19:18.211+00:002013-10-20T05:19:18.211+00:00In the context of the saving-investment balance an...In the context of the saving-investment balance and purely as an accounting identity, which variable or variables are directly affected and what would happen to gross private domestic investment (I) if:<br /><br />a) Domestic saving by households was to decrease, everything else remaining the same?<br /><br />b) U.S. net tax receipts were to increase, everything else remaining the same?<br /><br />c) There was a sudden increase in exports from the U.S., everything else remaining the same?<br /><br />d) Pre-tax business profits were to increase, everything else remaining the same?<br /> <br />e) Federal grants to state and local governments were to disappear, everything else remaining the same? <br /><br />Recall the saving-investment balance is given as:<br /><br /> S + (M-X) = I + (G-T) where S is domestic saving by households and businesses, M is U.S. imports of<br /> goods and services, X is U.S. exports of goods and services, I is private domestic investment in capital<br /> goods, G is total federal, state and local government spending on goods and services, and T is the net<br /> receipt of tax revenues by federal, state and local governments<br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-24075599753202935692013-08-17T00:15:47.320+00:002013-08-17T00:15:47.320+00:00"The point is Simon's goal is the re-dist... "The point is Simon's goal is the re-distribution of wealth, from that goal he starts talking. That is NOT, CANNOT BE, economics. That is a social agenda that actually pits him directly against economics."<br /><br /> Morgan are you unaware that economics is a social science-no matter it's pretensions... It's not physics. As economics is a 'science of society' where would a social agenda be more appropriate?<br /><br /> You too from what've you said on many occaisons clearly have a social agenda. You've hear of the Immaculate Conception? Well this conservative definition of economics is the Immaculate EconomyMike Saxhttps://www.blogger.com/profile/01360689916550576484noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-29548152674137190792013-06-08T05:25:01.959+00:002013-06-08T05:25:01.959+00:00This comment has been removed by a blog administrator.Matthttp://www.healthierways.com/noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-45529794878978597752013-06-07T14:58:21.851+00:002013-06-07T14:58:21.851+00:00"You're ignorant" is not an argument..."You're ignorant" is not an argument. I think Morgan does know the basics, and has not lost common sense in a sea of socialism disguised as "complexity". Danny Wrighthttps://www.blogger.com/profile/15006024707303951009noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-34032110831014043002013-05-13T06:14:54.829+00:002013-05-13T06:14:54.829+00:00alternate way of thinking is Investment savings, p...alternate way of thinking is Investment savings, please i need someone to give a detailed analysis for this jaynoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-25362552881343947342013-02-18T12:41:59.204+00:002013-02-18T12:41:59.204+00:00Morgan, you don't understand the very basics, ...Morgan, you don't understand the very basics, yet despite your complete ignorance you have very strong opinions. <br /><br />I believe that in your country people like you are normally referred to a "jackasses".Jamesnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-54381790200896721952012-09-11T08:41:42.234+00:002012-09-11T08:41:42.234+00:00High I am studying the basic relationship between ...High I am studying the basic relationship between Output, Investment and Savings.<br /><br />This is what I understood so far but there are still some sections that are unclear and would be very thankful for you to explan them for me, Thanks.<br /><br />To derive a relation between output and investment we must make 3 assumptions.<br /><br />First..since economy is closed therefore I = S + (T-G)<br />I is Investment<br />S is Saving<br />T is Private Saving<br />G is Public Saving<br /><br />Second..to focus our behavior between Investment and Saving, we assume that (T-G)=0, so by definition the previous equation now is I=S.<br /><br />Third..we assume that Saving is proportional to Income so S = sY<br />where s = the saving rate (being from 0 to 1)<br />So therefore since I=S and S=sY We get I = sY also.<br /><br />so I believe I understand correctly when I say that higher output implies higher saving and therefore higher investment. Good?<br /><br />But still I am a little bit Confused on mainly assumption number 2 were we say that T-G = 0 ... Why exactly?<br /><br />Thank you! found the post very helpful.<br />Gouderhttps://www.blogger.com/profile/09295667484189248812noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-9964529704563773112012-07-04T07:02:22.045+00:002012-07-04T07:02:22.045+00:00This comment has been removed by a blog administrator.High Interest Savings Accounthttp://www.rabodirect.com.au/high-interest-savings/default.aspxnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-11946255720018567272012-01-17T11:49:47.211+00:002012-01-17T11:49:47.211+00:00Nick,
Again you seem to be thinking in microecono...Nick,<br /><br />Again you seem to be thinking in microeconomic terms. If the only consumption good is apartments, then yes, if people decide to spend less on apartments their income will fall (assuming fixed prices and interest rates) because their income must come from selling/renting apartments.<br /><br />You seem to have in mind a model where income is fixed, and if people don't spend on one good they must be spending on something else. But this is macro, we are talking about aggregate spending, not particular goods.<br /><br />As for Walras, I hope you appreciate the irony in basing your critique of Keynesian macro on a rejection of Walras's Law. Many people would claim (wrongly, in my view) that Keynesian macro violates Walras's Law. Maybe Simon could give us a post on Walras (or persuade one of his micro colleagues to do so) because there seems to be some confusion on the topic.econojonhttps://www.blogger.com/profile/11836028530972814027noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-38994532703753041722012-01-17T02:37:50.701+00:002012-01-17T02:37:50.701+00:00This comment has been removed by the author.Carvapaihttps://www.blogger.com/profile/18066643678044979412noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-34958096299750702332012-01-16T20:52:56.621+00:002012-01-16T20:52:56.621+00:00econojon: you didn't like my unobtainium examp...econojon: you didn't like my unobtainium example? I thought it was cute!<br /><br />OK, here's a more "realistic" example: start in equilibrium, then suppose the government imposes binding rent controls on all apartments, so there's an excess demand. Assume everyone rents (to keep it simple). Assume everyone wants to spend 40% of their income on renting an apartment, but because rent controls halved rents, everyone is only spending 20% of their income on renting apartments. Does this mean the level of income must fall by half to restore equilibrium in the market for rental apartments?<br /><br />Obviously not. OK, then why is it different if there's an excess demand for (say) land? Why does an excess demand for land not cause income to fall until people don't want to buy more land?<br /><br />(I don't believe in Walras' Law, by the way. I think it's wrong.)Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-51070275714759568642012-01-16T20:36:07.413+00:002012-01-16T20:36:07.413+00:00I commented on your post, Mistakes and Ideology in...I commented on your post, Mistakes and Ideology in Macroeconomics, essentially raising the point that this post is discussing, to say that if saving=investment then consumption smoothing does not imply that government spending financed through taxation will increase aggregate demand.<br /><br />My issue with your post is that ignorance of consumption smoothing is not the mistake that Lucas and Cochrane are guilty of committing (as you implied), since in the general equilibrium models with which they work consumption smoothing is the optimal response to a tax increase. Their mistake more likely is in the multitude of other assumptions that underlie their models.El Maratonerohttps://www.blogger.com/profile/12923783026616003656noreply@blogger.com