The Chimera of Macroeconomics

  We have the monetary inventory equation owing to William Baumol : M d = ( b ∙ T / 2 i ) 1/2 . T , for the aggregate monetary expenditures per annum , includes spending for GDP ( P ∙ Y ), intermediate goods, production factors, physical assets, human educations, financial instruments and the like.   Monetary Transmission Mechanism . The essence of fiscal policy or monetary policy is supplying “incremental money” ( Δ M ) to the private sector. On the other hand, we are very much well aware that the raison d'être of money is in spending.              As all of us try to get rid of the annoying thing, additional due to monetary policy, as soon as possible, some combination of the following will happen without fail: 1)      More products ( ΔC ) and fresh assets ( ΔI ) are created, and an increase in GDP ( ΔY ) follows. 2)      Prices of some products are raised. The...

  Quiz with the unit dollar up for grabs: What would be the word for winning in the competitive war to become California’s Air Hub between LAX (LA international airport) SFO (SF airport)? Hopefully, nobody other than me would come forward with the word “ connectivity ” as the answer.             Suppose LAX has 2,000 ( N 1 ) flight connections (to other airports) while SFO 1,000 ( N 2 ). On the other hand, “connectivity” means a bi -lateral relationship between two spoke airports via the hub. Now, what will be the aggregate number of connectivity through LAX vs. through SFO?             Most of us would have the answer: C lax =N 1 ∙ (N 1 - 1)/ 2= 2,000 x 1999/ 2 vs. C sfo = 1,000 x 999/ 2 . To generalize, C= N ∙ (N-1)/ 2 . Then on, we can make a speedy guess that C ≒ N 2 / 2 when N is larger than, say, 100. This is the network effect , sometimes called “Metcalfe’...

  Once upon a time in the West, there was a certain “creative destroyer,” as it were. For the sake of convenience we copy the rest of story from Wikipedia .   Richard Arkwright, who patented the technology in 1769, designed a model for the production of cotton thread, which was first used in 1765. The Arkwright water frame was able to spin 96 threads at a time, which was an easier and faster method than ever before. For yet additional convenience, we assume the “thread” is a final good traded in the market. Law of Diminishing Returns. Now suppose a firm registered as Threads Maker & Sons Co. The firm owns 100 Arkwright and hires about 300 laborers in the factory. The firm keeps the number of machines constant over the three fiscal years as “capital budgeting” cycle. The firm experiences the law of diminishing returns as “labor-hours on the job” increase in the given cycle of capital.              Apparen...