What's a "correct price" really? Does it exist? Lately I've been thinking about the concept of price setting in market economy. There are various (perhaps naive) view on this such as:

The price is always the optimal for the buyer and the seller.

or

The prices reflect collective valuation of a particular resource/service/...

However, I find these unsatisfying due to the complexity of the concept of "value". Particularly how one's own choices relate to choices of others. Then, what's a "correct price" really? Is it "the price I paid" or some "communal price", "societal price"?

tl;dr as KennyLJ correctly points out the concept of correct price is meaningless and it does not exist or rather you could say any price is the correct price (but again this just makes the whole concept meaningless because if every price is correct then thats just a price -  a concept of 'correctness' makes only sense if there are some incorrect instances).
The reason for this is that there is no 'intrinsic' objective value to anything. Since all value is completely subjective without even slightest objective component there cannot be any correct or incorrect price because there is no correct or incorrect value to anything, every valuation and any price is correct and hence the word 'correct' loses its meaning.

Full Answer:
The question of what is the 'correct' price is actually interesting from the perspective of history of economic thought and it actually dominated economic thought in ancient and medieval times and in some non-economic thinking it persists even to this day. In those times what is correct was heavily influenced by ethical considerations as at that point economics did not yet emerged from moral philosophy and could not be divorced from all other subject subsumed there (similarly as all natural subjects were at the time part of natural philosophy). As a result the early economic thinking was dominated by the concept of 'just price' which was considered both moral and desirable. Furthermore, just price and any other thinking on 'correct prices' relies on notion of objective intrinsic value.
Paul Mueller & Jan Gerber discuss the history of 'just price' concept in great detail I will do it here only briefly. The concept already originated with Aristotle in his Nicomachean Ethics and Politics. In Aristotelian thinking a just price would be a price at which the same value is exchanged. That is a just price wold be a price at which $\\\$1$ of value embedded in apples exchanges for exactly $\\\$1$ value embedded in peaches.
Thomas Aquinas expands on the Aristotelian concept according to Muller & Gerber by using the following innovations:

While it is still wrong to sell something for more than it is worth, it is not wrong to sell something for more than one paid for it. While Aristotle saw injustice in the shoe example, Aquinas recognized that one can do something productive or useful with a good that improves it in such a way that its value is higher, and so a higher price is still just. Transporting the shoes from one town to another represents a kind of improvement, as does any kind of labor performed on the good.
While this is a little more sophisticated than Aristotle’s account, it still relies on an “intrinsic” or “natural” value of goods—with a focus on the costs or input which creates value. Furthermore, Aquinas and other scholastics were also wary of profit. Some profit, a “reasonable” amount, was fine. But excessive profit could only be the result of injustice and exploitation.

Later when economics started to emerge as a separate field from moral philosophy classical economists started to turn away from the moral notion's surrounded around the 'just price' (since in science we like to make sharp distinction between normative value judgement and positive inquiry) although as the article by Muller & Gerber explains in moral philosophy the notion lived on for a bit more, but the classical economists such as Adam Smith or David Ricardo did not turned away from the notion of intrinsic value which would still enable a possibility for 'the correct' price to exist.
In fact Adam Smith was firmly behind the idea that there is some intrinsic value to goods and services. As Steven Horwitz writes:

Smith is very clear in The Wealth of Nations that he sees labor as the source of value. For example, in the opening paragraph of Chapter 5 on real and nominal price (I.v.1., p. 47), he writes:
The value of any commodity, therefore, to the person who possesses it, and who means not to use or consume it himself, but to exchange it for other commodities, is equal to the quantity of labor which it enables him to purchase or command. Labor, therefore, is the real measure of the exchangeable value of all commodities.
And later in that chapter (I.v.7., p. 51):
Labor alone, therefore, never varying in its own value, is alone the ultimate and real standard by which the value of all commodities can at all times and places be estimated and compared. It is their real price;  money is their nominal price.

However, as our scientific understanding progressed any notion of objective intrinsic value got completely shattered. This occurred during the marginal revolution where subjective theory of value was virtually simultaneously discovered by Jevons, Walras, and  Menger in the late 19th century.
The subjective theory of value claims that there is no objective intrinsic component to any value and all value is completely subjective given by person's own preferences. This theory of value can explain situations that labor theory of value or other theories of value cant. For example, under labor theory of value digging hole and immediately covering it up should have some intrinsic value due to labor component embedded in it but we can observe that people dont value such absurd waste of labor. This can be fully explained by subjective theory of value that would simply postulate that the dig up and immediately covered hole is worthless because nobody values it (or if someone actually pays for it it has some subjective value of them). Conversely, even things that do not have any labor embedded in them can be valuable. Furthermore, value further fluctuates based on what are people's marginal utilities. As the quotes mentioned in the_rainbox's answer from Adam Smith show, classical economists already argued that individuals have different levels of utility or 'value in use', but did not properly connect them to prices, or 'value in exchange', considering them separate, one derived from the quantity of labour input and other production factors (see Stigler's The Development of Utility Theory. I).
Currently subjective theory of value dominates the mainstream economic thinking, and does so to the point that with perhaps a little bit of a hyperbole the detractors from this theory are in similar number and position as anti-vaxxers in medical science. You will find the subjective theory of value in every modern economic textbook and arguably it is either implicit or explicit in wast majority of the whole corpus of economic literature written post marginal revolution. What even more, the subjective theory of value 'spilled' from economics back to the moral philosophy where it was used to nail the last nails into the coffin of the moral theory around 'just price' (see the article by Mueller and Gerber again).
As prefaced at the begging under subjective theory of value, objective intrinsic value that could be used as a justification for correct price simply does not exist. If two people make any voluntary transaction in the market they must either exchange equal or both greater value than was lost (or some combination of thereof) meaning if any transaction occurs the price is automatically the 'correct' price for people engaging in that transaction. Furthermore, even if a transaction does not occur because maybe seller asks for too large price or buyer for too low price you cannot dismiss their subjective valuations as incorrect and the prices they are asking for as an incorrect prices. Once you adopt subjective theory of value any notion of correct price becomes completely absurd. Hence the answer to your question is that there simply isnt any 'correct' price.

Your question is actually 3 or 4 semi-independent ones, but I'll take your cue and attempt to answer in the same manner.
Adam Smith in his book "Wealth of Nations", Book 1, argues that there are two distinct forms of value in "every thing":

Value of use; the value one has from using said thing.
Value of exchange; the amount of another thing that said thing can be exchanged for.*

When exchanging a product for another, you get the real price of both things, in a relative fashion. This relative price of both things depends from how each person values the product they give in relation to the one they take.
When you exchange a product for money, you get the nominal price of said product. This nominal price corresponds to the real price in a mutually agreeable fashion for both parties of an exchange; meaning that if money has an intrinsic value of its own, mostly value of type (1), then fluctuations of that value will change the nominal price that each good can be exchanged with money for. However the real price of this product hasn't changed, ceteris paribus.
*Smith speculates that labor is the factor with which value of exchange is ultimately decided independently by each party, though this decision is mostly arbitrary - it is not precisely quantifiable before setting the price.
Notes:
I would suggest you look into Walrasian equilibrium for a methodical theory price setting, and of course, please do read Adam Smith's Wealth of Nations; the first book provides theories for most of your questions.


Why isn't the Fed funds rate greater than interest rate on loans to the pubic First of all, fed funds rate is the rate banks borrow reserves' from each other. Interest rate on loans is the rate the bank charges to public for its loan. From one line of logic, we think of the rate bank charges to public should clearly be greater than the interest rate itself bear to borrow since banks are making a margin. And empirical data clearly support it.

However, another line of logic does not quite support it. We know the banks borrow reserve money in fed funds market, which is clearly better than the money it lends to the public in the following sense: one unit of fed funds can support 10 units of additional deposit if the reserve-deposit ratio is 10%. So the banks with this addtional 1 unit of reserve, can theoretically make 10 more units of loans and therefore creating 10 more units of deposit. So reserve is better money. Hence, theoreticaly, the fed funds rate should at leastbe higher than the rate banks make loans to the public, if not 10 folds.

My question being whether there is a logical fallacy in my understanding and if not, what kind of reality deviated it from theory.

I think you are missing the credit risk attached to any loan. You, as an individual borrower, are far more likely not to reimburse your loan than a bank. Thus the loan is far less risky.

Central bank money could only be qualified as "better" (even that does not mean much) because it is issued by the Central bank, deposits are issued by commercial bank, so you bear the risk that your bank fail, but it happens that in most country individual deposits are insured by some state agency. So I cannot really see why central bank money would be better than deposits.

Nowadays, the amount of reserves that a bank must hold does not actually play a big role in the economy (as opposed to what most of economic textbooks and economic professors are teaching in undergrad schools). The most important part is the interest rate that is paid on those reserve, which is fixed by the central bank and which act as an opportunity cost for the bank when it decides to lend to an individual rather than holding reserves.

However I see your point, but the fact is that this way of thinking is misleading. Banks create (in theory) as many loans as they want, because there are no physical constraints, if you want, that prevent them to do so. The only constraint is a regulatory constraint that states that in order to remain solvent (in order to be able to repay the depositors) banks should invest x% of the assets in reserves. Those reserves would be held on a central bank account in central bank money, and the return on those reserves will be the fed fund rate decided by the central bank (the same way a commercial bank decide how much interest it will pay on your savings account). So it is true that one more unit of reserves gives the right to issue more than one unit of loans but this does not mean that one money is better or worse than another. It's is just a matter of regulation.

It may be hard to get, but the point is really that central bank money is safer so cheaper than deposits, no matter what regulatory constraints apply to banks.

You may want to read this paper which may be a bit complicated but you should get the intuition. This two docs may be simpler (with nice pictures) : doc 1, doc 2.

The core premise of your question is correct.  Banks receive a tremendous advantage from Fed actions and any discerning economist should be concerned over the amount of corporate welfare doled out banks....especially as they will take that money and engage in maturity mismatching which is an incredibly volatile, dangerous and inflationary practice that transfers wealth from the public to the private banking sector.

There are many such ways banks receive corporate welfare.  This includes Fed dividends (for not loaning out 100% of our deposits!). It also includes interest on "excess reserves" (again our deposits).  Troubled banks are given below market interest rates with discount window loans.  But the bigger problem with the discount window is that it creates a certainty that the Fed will backstop bad behavior.  Then there is the open market.  The Fed overpays for REPO's from special banks (primary dealers).  There is also a good reason to suggest the REPO market is being churned as well to encourage excess trading volume.  But the big problem with the open market is it provides artificial liquidity guarantees to the banking system at large.  If banks know that the Fed will ensure that the money market will hum along at a very low rate, then they are more apt to engage in maturity mismatching which creates inflation and volatility.  The entire system is corrupt beyond belief and most economists are totally oblivious to this reality.


When and why did governments impose restrictions on money creation In many countries governments have made laws that bar themselves from creating money directly. Instead they have to go via a circuitous route involving the creation of bonds. This means that the government has to go into debt in order to create more money. The reason for this self imposed restriction seems obvious to me - it is a kind of advertising to prospective purchasers of government bonds. It says "don't worry about us devaluing your bonds through excessive money creation because we have written it in stone that we're never going to do that". If it wasn't for this assurance then government bonds would be harder to sell.

Whatever the reasoning - after many years being interested in this question I have never come across any official explanation. Surely somewhere there must be a record of how these restrictions came into existence. Where are these records?

In any healthy economy, the central bank is independent of the executive government. (Since the central bank can be thought of as part of the 'government', I want to be specific about which parts of government I am referring to—by "executive" I mean the body of people who are in power and who administer policies.)

This separation is in order to separate fiscal policy from monetary policy, as this makes it easier to achieve monetary policy objectives. Otherwise, the executive could enforce money creation merely to achieve some objective, such as increased government spending or a decrease of local-currency denominated debt, but this would send inflation skyrocketing. Instead, the executive (through the Treasury) sells bonds on the open market. Any entity is free to buy those Treasury bonds, and the price is determined by the market. (An executive that controls the central bank and forces them to buy Treasury bonds is not really independent of the central bank—it is just a show.) So, the Treasury selling bonds is how the executive raises money for itself, but it also increases the demand for money, so the central bank needs to be part of the group of entities that buy the bonds, in order for interest rates to remain unchanged. Needless to say, when the central bank buys bonds, it is increasing the supply of money.

I give you my guess... whatever it worth. First, when government sells bonds it doesn't necessarily creates new money... public purchases those bonds with existing money, with expectation to be repaid with interest rates. And how government repays? By collecting taxes.
So as you see, this is not printing money... this is borrowing from the public, and later repaying it back with public tax money...

I do not believe that any central bank in any country is truly "independent". Now from time to time the central bank will decide to print new money, and purchase government bonds with it... and then "forgive" the government debt. When the central bank does this, then you may call it "printing new money".

Why governments play this game, where there is an illusion of an independent organization (central bank) that decides how much money to print? I don't know... I guess they want to make it look like that the national currency is not a simple paper that the government can print any time it wants, so they create this illusion of a complicated and obscure process how new money is printed and pretend that nobody understands what is going on.


Necessary conditions for the existence of a competitive equilibirum I got that in an exchange economy, conditions as preferences being continuous, strictly convex and strongly monotone and $\sum_i \omega_i\gg 0$ are sufficient conditions for the existence of a Walrasian (or competitive) equlibirum.

Are there necessary conditions for the existence of an equilibrium?

If the competitive equilibrium exists, it must lie on the contract curve where two consumers' marginal rate of substitution are the same. Also, this equilibrium lies inside the zone of mutual advantages (area where the indifference curves intersect with the endowment) because trade is voluntary. If consumers’ marginal rates of substitution vary continuously with their consumption levels then a competitive equilibrium exists


Why do celebrities get high wages? In the youtube video Why We Look down on Low Wage Earners the author argued: "economics states that wages are determined [...] by the number of people willing and being able to do a given job that others won't do." (video at 1:00). While this explains much of the variance in the wages of different jobs, it does not give in my opinion a good explanation, why celebrities earn high wages.

Take for example actors. There are a lot of people working in this field and there are many more wanting to become an actor or actress. Due to the quoted theory the wages in this field should be low which is not the case for celebrities. The theory does also not explain the variance of the wages inside this field (compare the median hourly earning of actors / actresses with those of celebrities).

My question: How do economics explains the outliers in the wages in form of the high earnings of celebrities? How does popularity exert an influence here? (Do celebrities get much money because they are popular or are they popular because they are rich?) How does economics explains the different wages for a certain kind of job?

If you ask yourself how much a potential employer would have to pay you to convince you to work for him, the answer is probably something like "at least as much as I could earn by doing the same job for another employer". So, provided there are several employers competing to hire workers, you can think of employers as bidding against each other for the best employees. But how much will firms bid? Each employer would be willing to pay up to the difference between its profit if it hired this particular worker and its profit if it took the next best alternative.

This is why the supply of alternative employees matters. If there are many people capable of doing the same job then a firm's profit if it hires you will be almost the same as the profit if it hire someone else. So why should it 'bid' a lot to hire you? An unskilled factory worker who asks his employer for a significant pay rise will likely be refused because virtually any worker doing the same job would have equivalent productivity.

Celebrities are a different story. Just as factory workers are hired to produce goods for the factory owner, actors are hired to produce movie ticket sales for the studio. But viewed in this light, Tom Hanks or Angelina Jolie are not close substitutes for as yet unknown actors at all. Indeed well-known actors are considerably better at producing ticket sales than unknown talent. Studios are willing to bid a lot to attract top actors because having a star in your cast is worth millions of dollars in extra ticket sales.

It's still supply and demand.  There are thousands of actors, but there is only one Tom Cruise.  Thus he can command a high wage.  It's not like they are a commodity, where each one is exactly alike, or very similar as would be the case for crane operators.


Effect of lower Government spending on Loanable Funds Market I'm having trouble with understanding what the results would be...

Let's suppose the situation where the newly formed government act to cut government spending and, by doing so eliminate the current federal government budget deficit.
Does this shift the demand curve or the supply curve in the loanable funds market?

I watched a Youtube video and it said demand would increase (crowding out) but my lecture notes contradict that by saying supply will decrease (crowding out) or does that result to the same thing?

If the opposite were true and the government proposes spending $1 trillion on infrastructure spending we will see a shift outward of the demand curve and rates will tick upward to a new equilibrium point. The crowding out occurs when we have movement along the demand curve (from the old interest rate --> new demand curve intersection up to the new intersection of the S and D curve).

With a decrease in government spending your demand curve for the loan-able funds market will shift inward and push the interest rate lower. When a fall in the interest rate leads to higher investment spending, the resulting increase in real GDP generates exactly enough additional savings to match the rise in investment spending.

It is somewhat agreed upon that contractionary fiscal policy leads to a surplus and the government can act as a creditor rather than a debtor. It will also leave more money for private investments for people such as small borrowers.

(There are some economists that believe that under the right circumstances that expansionary government policies may produce crowing in instead of crowding out. Keynesian economists may suggest that if the policy is strong enough to change the economic climate then businesses may find it profitable to add capacity -induced investment- which works to counteract and possibly out weigh the crowding out effect.)

Before answering this question please take in mind the following

Borrowing and lending is achieved by selling and buying bonds respectively. Lending is demonstrated by a demand curve while borrowing is demonstrated by supply curve
Bond prices have negative relation with interest rates.

A government spending cut and a decrease in government borrowing as a result of favorable decrease in budget deficit will shift the supply curve of bond markets to the left leading to higher bond prices and lower interest rates.
Crowding out occurs when government borrowing is raising interest rates by issuing  new bonds to finance its deficits and shifting the supply curve of bond market to the right. A decrease in government spending and borrowing will decrease interest rates. This will encourage corporation to borrow and participate in the bonds market.

For more information about the fundamentals of bonds market as well as factors shifing supply and demand for bonds please visit http://www.oswego.edu/~edunne/340ch6part2.htm


Is there any pressure to keep currency exchange rates around 1? I notice that for any pair of currencies, the exchange rates seem to stay around 1 (as opposed to, say, 1,000,000). This is no longer the case if one country experiences an economic crisis that results in a very high inflation, but otherwise, rates don't seem to deviate very much from 1.
As you may have guessed I have very little knowledge in finance, so correct me if any of my assumptions are wrong, my aim here is to learn.
An example I'm thinking of is the Leu in Romania. It was revalued several times, the latest in 2005, when 10,000 old Leus were converted to 1 new Leu. That made the exchange rate with euros, for instance, closer to 1, given that 1 old Leu ≈ 0.00025 Euros, then 1 new Leu ≈ 0.25 Euros.
Why is this? Is this something most countries do? Does this principle have a name?

There are some counterexamples to the premise of your question:

A USD has been on the order of 100 Japanese Yen JPY for decades. By the way, 1/100 JPY used to be called "sen", and 1/1000 JPY used to be called "rin" (source: https://en.wikipedia.org/wiki/Japanese_yen#Introduction )

Bank notes:

Price tags:

A USD has been on the order of 1000 South Korean Won for some time.

Bank notes:

Price tags:

A USD is about 3500 Colombian Pesos (COP) now. Again, it's been in the thousands for decades.

Bank notes (note that they write "mil" in small letters instead of 000):

Price tags:

Note that $ denotes the peso, not U.S. dollars.

A USD is about 20,000 Vietnamese Dong (VND). Again, it's been in the thousands for decades.

Bank notes:

Price tags:

etc. These countries are not in any kind of economic crisis. The exchange rates are reasonably stable. The large numbers don't inconvenience anyone (except for some badly designed IT systems that can't handle very large or very small numbers accurately). These countries are all doing well.
Conversely, let us consider two countries at the opposite end from "doing well", whose currency is rapidly depreciating versus USD:

A USD is somewhere around 1,000,000 Venezuelan Bolivar (VES). Venezuela did redenominate its currency from "VEB" to "VEF" to "VES", over the last few years, dropping many zeroes. It did not help. The rapidly depreciating currency is one of the symptoms of their economic problems, not the cause.

A USD is somewhere around 100 Russian roubles (RUB). The rouble has been depreciating rapidly for years, especially after the West imposed painful sanctions to punish Russia for its aggression against Ukraine in 2014. Russia did already redenominate the rouble from "RUR" to "RUB" dropping 3 zeroes not long ago:

That did not help. Russia is still broke:

Russians looking for expired food.
Desperate Russian officials can't avert another imminent sovereign default, but are looking to delay the inevitable. They discuss redenominating their rouble again, dropping 2 more zeroes, and making 1 new rouble more valuable than 1 U.S. dollar, probably some variant of the Soviet "confiscatory redenomination" of 1947 (see https://en.wikipedia.org/wiki/Soviet_ruble#Fifth_Soviet_ruble,_1947%E2%80%931961 ). This won't help. Except for stroking Russian national pride, I fail to see the benefit of having a currency unit worth more than 1 USD.
Let us therefore look at some examples of currencies whose 1 unit is worth substantialy more than 1 USD.

A Kuwaiti dinars (KWD) is somewhere around 3 to 3.5 USD . This does not pose any inconvenience when a subunit of the currency is small enough. A 1/1000 fraction of KWD, worth about 1/3 of US cent, is called "fil". Here is a 1/2 KWD (500 fil) bank note:

Price tags:

This bottle of water costs 0.055 dinars, i.e. 55 fils, which is about 16 U.S. cents.

Chile widely uses an inflation-adjusted currency en.wikipedia.org/wiki/Unidad_de_Fomento - 1 unit of account is worth about 40 USD. It is not available as cash (bank notes or coins), but is primarily used to denominate real estate prices, stock prices, loans, etc.

1 Bitcoin (XBT) is worth thousands of dollars as of this writing. Conveniently, one hundred millionth of a bitcoin is called a satoshi and can be used in transactions.

Back when the U.S. dollar had a lot more purchasing power than it has today, prices commonly used "mill" (1/1000 USD). It's still perfectly legal (see https://en.wikipedia.org/wiki/Mill_(currency) ) and is often seen as the "9/10" on U.S. gasoline prices:

Contemporary gasoline prices.

Antique gasoline price sign: the gas costs 10.3 cents and the tax is 1.7 cents, i.e. 17 mills.

Also the Euro (EUR), the British pound (GBP), and the Swiss franc (CHF) are all worth more than 1 USD (but usually less than 2 USD).

A good (but not quite complete) list of recent redenominations can be found in Wikipedia https://en.wikipedia.org/wiki/Redenomination#List_of_currency_redenominations . As you see, just swapping 1,000 units of the old currency for 1 unit of the new currency changes nothing. However in the 1947 Soviet confiscatory redenomination cited above, if the state owed you 10 old roubles before, then the state now owed you only 1 new rouble. But if you owed the state 10 old roubles, then you still owed 10 new roubles to the state. This may be the kind of scheme that Russian officials are contemplating again.

This is mostly done by the individual countries out of convenience. First, most countries have a main currency, say the US-Dollar, and this unit can be separated into 100 small units, ie cents. One cent is then the smallest currency unit available in the US.
So if a country had a currency with a value much higher than 1 US-Dollar, that would be inconvenient because prices could not be adjusted as accurately. Imagine everything have to cost an integer amount of US-Dollars.
Having a currency value much lower is also inconvenient because you have to keep track of all the extra zeros that don't add any additional information. This does happen as the examples Dimitri Vulis answer show. Usually prices are then marked not directly in South Korean Won but rather in units of 1000 Won again resulting in small easy to use numbers.


Why would banks not want to lend, under Federal Reserve's Main Street Lending Program? The Fed is paying 95% of the loan, so why would the banks be scared of lending?
Even if the bank loses their 5% because they partaked in Fed's Main Street Lending Program, can't the Federal Reserve or US Treasury can bail out and rescue the bank?

The Trump Administration Says a New Bailout Program Will Help 35 Million Americans. It Probably Won’t. — ProPublica

  Banks Might Not Lend

  Another problem is the mechanism by which the program will be implemented: through banks.

  The Federal Reserve doesn’t normally lend to nonfinancial companies. So, as with the Paycheck Protection Program, banks will take on the responsibility of studying the finances and prospects of each business that wants a Main Street loan and decide whether to approve it.

  To protect taxpayers and incentivize the banks to make good loans, the program requires banks to keep between 5% and 15% of the debt — and thus a portion of the risk — on their own books. But that clause also deter banks from participating.

  Putting their own money on the line could be an obstacle, said Christy Hester, director of growth and development at the Independent Bankers Association of Texas. “It means they’ve got accounting and reporting requirements,” she said. “Just setting up the accounting side of that and the servicing side of that, if it’s not already set up, that’s a pretty big burden for a small community bank.”

  The Small Business Administration, which is administering the lending program, has said it will disclose the names of companies that got loans — just not yet. News organizations are suing to stop the delay.

  The Main Street program compensates banks by allowing them to charge an origination fee of up to 1% of the loan, plus an annual servicing fee. Because it’s so difficult to assess the risk of lending money in the climate of pandemic-induced uncertainty, that might not be enough.

  It’s not surprising that banks would prefer to receive higher fees and take on less risk. But it does mean that running the program through the banks could slow things down.

What Is the Federal Reserve Main Street Lending Program? - SmartAsset

  More specifically, once your company gets its loan, the Federal Reserve will buy up 95% of the loan from the bank, leaving just 5% with the bank that originated the loan. The term of these loans is four years, and amounts generally range between \$1 million and \$25 million. These loans cannot be used to pay off any other existing debt the borrower has.

  The Federal Reserve will be purchasing up to \$600 billion in loans.

I saw these two answers on Reddit or Quora, but I can't find them now. Just edit this if you do.

Because the potential losses are much bigger than 5% if you read the program. Consider the pari passu clause. In a liquidation, what's the collateral that the Main Street loan has a claim to? Collateral that is securing any existing loans you’ve granted! Thus your loss can easily outstrip the 5%, as it eats into existing collateral and increases a bank's deficiency.
Even if the bank just loses 5%, the people needing this money are going to be very risky and banks can focus their time and efforts on way less riskier programs. Contrary to popular belief, a bank doesn’t just magically get bailed out with zero pain anytime they lose some money. It’s still a 5% loss which on loans of this size are significant once they get added up. Moneys have much less risky and better ways to sell their money right now.

That is why the loan program should have been more like FAFSA that use IRS data to verify businesses and grant them an amount. FAFSA get to pick a bank to service or another servicer. This is how the student loan program works. If the loans were based on credit alone then no one would get them. Doing this through the banks was a horrible idea. If you grant businesses an amount, then they are the customer that chooses the bank that gets the servicer fees as the loans are guaranteed. Not the other way around where banks are the gatekeeper to this money.
It is amazing how bad banks screwed up in the last bailout which they used just for themselves and to shore up capitalization/leverage. We were stupid to trust the banks this time ago, and by design are helping larger companies by the cronies.
The market is efficient. You have to set the right incentives and targets though.
Banks are in self-preservation mode. If they were cut out and had to go court customers with free money in guaranteed loans with windfall service fees from the bailout they would, though since we let banks be the gatekeepers to survival again they get to keep free money and they will cut risk.


What effect does changing the retirement age have on employment? I had an interesting casual discussion with a colleague the other day.

A lot of western economies at least, such as New Zealand, have some form of retirement pension. It New Zealand it's called Superannuation. For a single pensioner, the amount received is 40% of the average wage.

I mentioned that as we get an aging population, the cost to the tax payer of paying this pension will increase. Currently about 12% of the budget is used to pay Superannuation.

One of the common solutions put forward is to raise the age that people are eligible to receive the pension.

However, my colleague pointed out that raising the retirement age will likely keep older people in the workforce longer, and pointed out that India in fact lowered the retirement age, as to generate jobs for young people.

So this poses an interesting problem - on one hand, increasing the retirement age saves the government and taxpayer money. On the other hand, it possibly takes jobs from young people and stiffles their career.

Is there any research on the effect of retirement ages and their effect on employment?

"(...) increasing the retirement age (...) possibly takes jobs from
  young people and stifles their career."

Since this is often surfaces as "the conventional wisdom" (not necessarily in economics circles), let's present a simple argument, that shows that there are bound to be distinct effects for people already in the labor force, compared to the people that have not yet started their working period in life.

To bring in the surface the core effect, assume a constant population, and a constant demand for workers (that does not mean necessarily constant output of course, since productivity and efficiency may rise).

Assume that in this society, people start working as they enter their 21st year, and retire when the enter their 61th year (40 years of work). An old person should retire today -but he doesn't: he will stay on for another year (say, because the government raised the mandatory retirement age).

Then, the young person that was about to enter the labor force in order to replace him, will have to stay out of it for one more year. He will now enter the labor force when entering his 22nd year and he will exit when he will enter his 62nd year. But this means that this person will work again for 40 years: Raising the retirement age, does not mean raising the numbers of years worked for the new/future workers. What happens is that their working life shifts as regards its beginning and end on their personal age-time, but not as regards its lifetime duration.

Does this "stifle their careers"? One could reasonably argue that starting one year later gives you one more year to accumulate human capital through education and training -and so when you enter the labor force, you will enter it better prepared than if the change in retirement age had not happened.

Casually observing western societies, this is what appears to be happening: people tend to acquire more and more education, and so also start working later in life. At the individual (or mass media) level, this may be negatively experienced/pictured as "high unemployment for young people" and "difficulty to get a job that makes the young people accumulating more education in their attempt to find a job". I presented above an alternative perspective on the matter.

But as regards those that were already workers when the change happened, and so have entered on the labor force in the beginning of their 21st year, will now work in total 41 years. If we envision a gradual rise in professional ranks and income, the change in retirement age will mean that they may have to stay one more year "where they were", and in that sense, increasing the retirement age may appear to "stifle their careers". But there is also Arrow's "Learning by doing": human capital increase due to on-the-job experience (a verified phenomenon even in a perfectly static environments). So this one more year will not be a total waste in terms of increases in income earning capacity -and it may pay off more for the younger workers, than for the older ones (since the former will gain it earlier in their working life). So the "career-stifling" argument gets a little weaker, even for the class of workers-already.

Obviously this is a very abstract approach to the matter... for example, what happens to societies where population is rising? How many people can a society afford to invest in -create human capital for young non-workers- at any given time?
...but I believe it reveals one aspect of the matter that we tend to overlook.

I think it depends on the state of the economy. If it's an ageing economy where you don't have young generation to take up work and in essence govt. is strugguling to support public welfare initiatives, the easy option taken is to increase the retirement age. Even India later increased the retirement age to 60/62. Its all about money now a days anyways.


Are cryptocurrencies a ponzi scheme or a bubble? Several users in this forum have addressed bitcoin and other cryptocurrencies as ponzi schemes. Bitcoins have several uses which could legitimate its value as a currency, but also have received massive investments in the last months, making it considered a highly speculative asset. Are there signs and information that proves that cryptocurrencies are being used as a (intentionally fraudulent) scheme, or should we consider it a speculative asset similar to other assets in economic bubbles that happened before?

In general, "Ponzi schemes" in the context of asset pricing refer to "rational bubbles", or a failure of the transversality condition you need when passing from a flow identity to a present value identity. They are not "fraudulent schemes". For instance, there can be a rational bubble on a "fundamentally" worthless asset in a perfect foresight world if its price grows at the real interest rate available in the broader economy. (This is actually what you're talking about, in case it's not clear to you - each investor assumes they can offload the asset at a higher price to another investor, and you push the problem of the "greatest fool" to infinity, which makes the assumption a rational one ex post.)

Is there any evidence for the existence of such rational bubbles? Cochrane (2002) points out that rational bubble theory does not account for the association of "bubbles" with high trading volume. In a rational bubble, it is rational to hold the asset in every period: there's no reason to observe high turnover along with high prices. They are also silent on the association of high prices with high volatility - in a rational bubble context, volatility (induced by shifting from one equilibrium to another) is always present, and the choice of equilibrium (the fact that we're on an explosive price path) does not produce more volatility than usual. Rational bubbles appear to be a poor explanation of events that people have historically described as "bubbles" (and of the price behavior of cryptocurrencies).

In contrast, the convenience yield theory outlined in Cochrane (2002) and also in this blog post seems to fit the data much better. If "overvaluation" is driven by a liquidity premium induced by shorting constraints and a short-term constraint on supply, then we would expect to see the standard prediction of monetary economics that high prices should be associated with high turnover. In that case, overvaluation relative to "fundamentals" should also require shorting constraints - in the case of dollars vs treasuries, for instance, it's illegal to print banknotes or close substitutes to money to finance a purchase of bonds, which is a kind of shorting constraint. Indeed, shorting constraints are what we see in the cryptocurrency market: BTC futures have only recently started trading on stock exchanges, and even then the "electronic paper" that you hold when you take the long side of a BTC futures contract is not the same thing as holding BTC directly, so what appears like a possibility to short BTC through these contracts is in fact not so. (It satisfies "speculative demand", so it's possible to "bet on cryptocurrencies" without having to hold any, but it's not possible to use these contracts in the place of cryptocurrencies in transactions.)

If you want to ask whether cryptocurrencies are a bubble, then you have to define what "bubble" means. If it is "overvaluation relative to fundamentals", then is USD a bubble? After all, it's trading at a premium relative to T-bills. If you include any convenience yield the asset may have in your definition of "bubble" so that USD is not one, then it's likely that cryptocurrencies are not "bubbles" either. It's very difficult to say anything about whether cryptocurrency valuations are "justified" or not by this explanation, since the convenience demand of cryptocurrencies, like of cash, has components which are not transparent. We're mostly in the dark, and I wouldn't try to outguess the market price of an asset in a circumstance where we know next to nothing about the factors which are driving the convenience demand for it.

A Ponzi Scheme is a fraudulent investment operation where the operator generates returns for older investors through revenue paid by new investors, rather than from legitimate business activities or profit of financial trading.

Hence, cryptocurrencies are not Ponzi Schemes, since this would require some central authority falsifying records to mislead investors. Cryptocurrencies are specifically designed to make this type of fraudulent activity, which relies on information asymmetry and trust in a central authority,  mathematically provably impossible.
Nobody is buying shares in an investment scheme, investors are trading an asset among themselves in the most transparent way possible (Everyone has access to an immutable public ledger, the Blockchain, containing details about every transaction that has ever occurred).

So in some sense, cryptos are the exact opposite of a Ponzi Scheme. On the other hand, one could make a case that Fractional Reserve Banking and Social Security are Ponzi Schemes.

EDIT: Other answers have suggested that fraudulent activities are not a necessary condition for a Ponzi Scheme. Other objections to my answer include my use of a non reliable source. From a legal perspective, the last word on whether something is a Ponzi Scheme lies with the Securities and Exchange Commission, whose definition should therefore be considered:

A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk. In many Ponzi schemes, the fraudsters focus on attracting new money to make promised payments to earlier-stage investors to create the false appearance that investors are profiting from a legitimate business.

Furthermore, it has been suggested that a group of actors attempting to drive up the price of cryptocurrencies by engaging in leveraged buying, are effectively running a Ponzi Scheme, and therefore cryptocurrencies are a Ponzi Scheme. I strongly disagree with this claim. Apart from the fact that it does not meet the definition, it is also not a claim about cryptocurrencies but about rogue actors using crypos in an attempt to implement a Ponzi Scheme. Any arbitrary asset could be traded in this way - this is not a specific characteristic of cryptocurrencies. Such "strategy" qualifies as deliberately creating a bubble, (an ill-conveived undertaking, exposing the creator to ever increasing market risk), rather than running a Ponzi Scheme.


Correlation between salary level and housing prices in a town Is there a measurable correlation in a town between salary level and housing prices?

Or, to put it differently: is it politically meaningful to drive up salaries by new investments if the result is unaffordable housing?

UPDATE: I do not want to edit the original question as others wrote their reply with that in mind, but it is right to suggest that it would have been better to ask about causality, not correlation.

The graph below plots average house prices against average incomes for various US cities. The relationship is strong in the cross-section, especially if you ignore Honolulu.

Richard Florida, Housing and the Crisis, Part IV

Is it also true dynamically, that is, are changes in income associated with changes in house prices (not just levels)? Van Nieuwerburgh and Weill (2010) say yes:

  We set up and solve a spatial, dynamic equilibrium model of the
  housing market based on two main assumptions: households with
  heterogenous abilities flow in and out metropolitan areas in response
  to local wage shocks, and the housing supply cannot adjust instantly
  because of regulatory constraints. In our equilibrium, house prices
  compensate for cross-sectional productivity differences. We increase
  productivity dispersion in the calibrated model in order to match the
  30-year increase in cross-sectional wage dispersion that we document
  based on metropolitan-level data. We show that the model
  quantitatively matches the observed 30-year increase in dispersion of
  house prices across US metropolitan areas. It is consistent with
  several other features of the cross-sectional distribution of house
  prices and wages.

Why Has House Price Dispersion Gone Up?

"is it politically meaningful to drive up salaries by new investments if the result is unaffordable housing?"

This is a very different thing from "is there a correlation", and I think what you're asking is: what's the use of investing in an area if that will only drive up salaries and thus housing cost?

The answer is YES it is definitely meaningful (politically or otherwise) to make new investments in an area that will (through market forces) drive up salaries. Driving up salaries will not drive up the cost of housing for a given level of quality unless housing development is artificially curtailed by government actions (which is very common). As salaries rise, over time higher-quality housing options will become available and will push up the average price of housing as a result, but the minimum price of housing on the market will not increase as long as housing development is allowed to keep up with population growth.

I would conjecture that the correlation you see in BKay's answer is due to higher-salaried people demanding higher-quality housing, and that the weakness of that correlation is due to differences in how difficult cities make it to build new housing.


Relevance of central bank Why do we need central bank ?
surely the government can print currency and regulate banks by conducting audits through finance ministry and so on.
Why do we need central bank ?

So why did we need a central bank? Well, lets look at what the co-author of what has gone down in history as the Aldrich Plan, named after Senator Nelson Aldrich. His co-author on the bill was Edward Vreeland who wrote in August 25th, 1910, in the Independent, a newspaper owned by Nelson Aldrich that, "Under the proposed monetary plan of Senator Aldrich, monopolies will disappear, because monopolies cannot continue at such a low rate. Also, this will mark the disappearance of the Government from the banking business."
An interesting piece of trivia is that when our modern day "Federal Reserve System" was being planned, Paul Warburg who was a European from Germany that worked for the banking house Kuhn, Loeb and Company informed his other colleagues that were also planning for this new system that we have today, to avoid using "central bank" in the name. That's how we got this name of "Federal Reserve System", but it's basically a central bank with a new label, new to the early Twentieth Century.
Another piece of trivia is that the argument for a central bank in 1812 was presented as being that financial distress brought about by the war (War of 1812) required financial relief in the form of a new national bank.
This was at least the argument made for the second central bank that was charted in the history of the United States, the House and Senate passed a bill creating the Second Bank of the United States. I am speeding through history here.
One last piece of trivia that speaks to your statement of, "surely the government can print currency and regulate banks by conducting audits through finance ministry and so on".
At the outset the opinion of Thomas Jefferson made the powerful argument regarding the proposal for the first central bank of the United States:
I consider the foundation of the Constitution as laid on this ground; That "all powers not delegated to the United States by the Constitution nor prohibited by it to the states, are reserved to the states, or to the people."
To take a single step beyond the boundaries thus specifically drawn around the powers of Congress is to take possession of a boundless field of power no longer susceptible of any definition.
The Bill delivers us up bound to the National Bank, who are free to refuse all arrangements, but on their own terms, and the public not free, on such refusal, to employ any other bank.
The bill that Thomas Jefferson referred to was one put before him by proponents of central banks, namely Alexander Hamilton.
Citation:

Charles A. Lindbergh, Sr., Banking Currency and the Money Trust
The Writings of Jefferson, vol. 7 (Autobiography, Correspondence Reports, Messages, Addresses and other Writings)(Committee of Congress: Washington, D.C., 1861) page 685.


Why did creating the Eurozone cause the cost of labor to rise in Greece? As I understand the implementation of the Euro as a common currency caused labor prices to spike in certain countries, Greece being one of them. Why did this happen? Why did it affect certain countries more than others?

I think we should ask why didn't Germany's labor cost increase, while everyone else's did:

The eurozone had economic growth before 2008, so appreciating labor was expected, especially due to increasing labor mobility. Wages were converging to Germany's.

In addition, Southern Europe saw an influx of capital (this is how they caught the debt crisis). Capital triggered some speculative economic growth — 4% in Greece — and an increase in wages.

One more thing. When the crisis hit in 2008, the private sector fired a lot of people. But high-paid employee remained. Which lead to this 12% pike in the business sector alone, as the average wage of the remaining workers increased:

Unit labor cost, year-to-year change: Business sector services only

Data source

The public sector kept its employees, so on average you have no peaks in 2010 (the first figure). And after 2010, you see a decline — basically caused by the same determinants, now working in the opposite direction.

Greece had a relative large (and inefficent) public sector. At the time of the financial crisis greece wasn´t able to finance it and it reduced the expansion for the public sector. Thus the demand of the public sector was decreasing. And therefore the gdp decreased. The relative small private sector wasn´t able to compensate the decrease of the public sector. Additionally the private sector wasn´t, and still isn´t, very competitive. This cannot be changed very quickly, if a country cannot depreciate it´s currency. That´s why some people say, that a Grexit is the only way, that greece could manage the crisis. In the past years Greece is trying to get competitive in the euro zone. But this is a difficult way. Greece has to produce more high quality goods. To achieve this, greece has to make the "right" reforms education sector, taxation, public services, etc. But it is taking a long time that these reforms make the greece economy competitive.

Ireland had a relative large financial sector. Therefore Ireland has hit hard by the financial crisis. Because of the recovering of the worldwide financial industry in the past years ireland was able to grow.


what is the interpretation of $\beta_{ij}$ in the translog production function? The translog production function is defined as the following.
$$\ln y=\alpha_0+\sum_{i=1}^n\alpha_i \ln x_i+\frac{1}{2}\sum_{i=1}^n\sum_{j=1}^n\ \beta_{ij}\ln x_i\ln x_j $$

I know it is a approximation of the CES production function and simplifies to  being a logged general cobb douglas production function when every $\beta_{ij}=0$.

however in cases where every (or even a single) $\beta_{ij}\neq0$ what interpretation does it take on?

i.e. I know $\alpha_i$ is interpreted as an "output elasticity", what is $\beta_{ij}$ interpreted as?

You may interpret $\alpha_i$ as the output elasticity regarding input factor $x_i$, keeping other factors $x_j, j\neq i$ constant. $\beta_{ij}$ is an indicator for complementarities in production, i.e. how much does the addition of one percent of both factors $x_i$ and $x_j$ add to $y$. Since there is the factor 0.5, and since $\alpha_i$ and $\alpha_j$ are relevant too, the interpretation is not that straightforward.

There is no meaningfull interpretation of   the coefficients of most nonlinear in $x$ production function.  The $\beta $ terms correspond to the second order Taylor development of $\log(y)$ wrt $\log(x)$ and allow substitution (or complmentarity) between inputs that go beyond the homothetic Cobb-Douglas case (in which the substitution patern is very specific). The $\beta$ also allow elasticities of $y$ wrt $x$ (or the shares of input cost in sales if firms are profit maximizing) to deviate from the constant terms $\alpha$ and to vary with $x$.


Calculating Gini Coeffecient What's the fastest way (or formulae) of manually calculating Gini Coefficient of equal-sized bin income data?

Example:
No of individuals in group: 4 4 4 4 4
Income of each group:       1 2 3 4 5
respectively.

All of these answers are true but don't provide an easy solution which doesn't use excel/code. Gini can be fairly easily computed by hand too.

The Gini coefficient fundamentally shows the shaded region above the lorenz curve in order to get a relative gauge of the distance the lorenz curve is from the line of equality. Fundamentally what this shows is the average distance between incomes. with 1 being the highest possible income and 0 being the lowest.

One way to calculate this is to simply calculate the area between the line of equality and the Lorenz curve.

This is clearly pretty difficult to do. Luckily there is an easier method.

Gini is also equal to: (The average variance for all incomes) / (2 * the mean)

The average variance for all incomes can be calculated by constructing a matrix of all incomes and then calculating the distance between each income.

For your example:

  | 1   2   3   4   5
__|___________________
1 | 0   1   2   3   4
2 | 1   0   1   2   3
3 | 2   1   0   1   2
4 | 3   2   1   0   1
5 | 4   3   2   1   0

Then add up all of the distances within the matrix to get the total variance.

0 + 1 + 2 + 3 + 4 + 1 + 0 + 1 + 2 + 3 + 2 + 1 + 0 + 1 + 2 + 3 + 2 + 1 + 0 + 1 + 4 + 3 + 2 + 1 + 0 = 40.

Then divide it by the total number of elements within the matrix to get the average variance.

Average Variance = 40 / 25 = 1.6.

Now divide the average variance by the average income times two.

Mean = (1 + 2 + 3 + 4 + 5)/5 = 15/5 = 3

Mean*2 = 6.

Since the gini is equal to: (The average variance for all incomes) / (2 * the mean):

Gini = 1.6 / 6 =  .2666

Which is what the other users got through more complicated methods.

A super simple calculator, assuming equally sized bins, is here. Simply input your data, comma reparated (e.g. 1,2,3,4,5 in your case), and you get the result, together with a nice graph!

This confirms that Gini in your example is 0.267, as the other two people suggested.


Do the efficiency savings of mergers indicate a type of waste or inefficiency in a market? In this BBC News article about the merger of Tata Steel and Thyssenkrupp, the following figure is reported:

  The merged group anticipates it will make costs savings of between £350m to £440m a year.

Presumably some or all of these savings would be achieved by eliminating redundant duplication of departments across the two organizations.

Are the cost savings mentioned in the article indicative of a fundamental inefficiency caused by a competitive market, that wouldn't be present in, say, a nationalized industry (or total monopoly)?

Are the cost savings mentioned in the article indicative of a
  fundamental inefficiency caused by a competitive market, that wouldn't
  be present in, say, a nationalized industry (or total monopoly)?

That "causation" is mischaracterized. It is not that a competitive market causes inefficiencies, but that it encourages their removal. Inefficiencies also exist in a state-controlled economy, but there the government pursues other policies because it does not need to be concerned about the risk of being left out of the [state-controlled] market.

The title of the article you shared serves to illustrate the point. The fact that the unions "welcomed" the merger reflects how they typically object to mergers (elsewhere, the article quotes one union officer in terms of having "made great sacrifices"). The historical friction from unions is antithetical to the optimization that eventually becomes indispensable in a market-based economy. Here, it appears from the article that the unions understood that Trump's tariffs on steels and the imminent consequences from Brexit are compelling reasons to reach an agreement and accept the merger.

A natural monopoly is the only monopoly that could thrive in a competitive market because, by definition of natural monopoly, the existence of competitors would not result in improvements in the market or economy.


Is marginal cost different from extra cost? I have been reading this resource which talks about why derivatives can be used to find the marginal cost.

https://www.dummies.com/education/math/calculus/how-to-determine-marginal-cost-marginal-revenue-and-marginal-profit-in-economics/

I am slightly confused about a statement referring to marginal cost and extra cost. They write "If you look very closely at the right side of the above figure, you can see that the extra cost goes up to the curve, but that the marginal cost goes up a tiny amount more to the tangent line, and thus the marginal cost is a bit more than the extra cost".

Are they stating that the marginal cost is different from the extra cost? Isn't that incorrect as the marginal cost is the extra cost from producing one more unit of a good? Or is marginal cost separate from the extra cost?

is it saying that marginal cost is different from extra cost?

In this graph they use marginal cost to describe a sort of linear approximation of the change in the cost function $C(x)$ at some point $x_0$, that is
$$
MC_{x_0}(x) = (x-x_0) \cdot \frac{\partial C(x_0)}{\partial x}.
$$
This is indeed not the usual way the term marginal cost is used.

I think it's because marginal cost is the area of the triangle under the tangent line, since marginal cost is the derivative of the cost function. But since the cost curve is shown to be convex, the actual cost of increasing production by one unit would have less area.


Why does increasing the money supply decrease the interest rate in layman's terms? If money supply increases, then I will have more money in my pocket to spend more. I imagine that prices will also increase over time to adjust to there being more money in circulation. Is it because that now, fewer people want to save because they have so much money to spend that the interest rate in general decreases when the money supply increases? Can someone explain it to me from an average Joe perspective, as in how does the increase of the money supply affects me personally and why the interest rate would decrease?

On most fundamental level it is because interest rate is price for money. In the same way as price of milk goes down when supply of milk increases (ceteris paribus) price of money goes down when supply of money increases. For example, consider the following diagram from Blanchard et al. Macroeconomics below. You have supply of money (by central bank) and then you have demand for money by people. Interest rate ensures that demand for money = supply of money. If supply increases (shift to the right) interest rate has to decrease otherwise people would not be willing to get and hold that additional money.

It should go up.  More money means more  inflation.  Inflation requires higher interest  rates to attract depositors who would otherwise spend the money before it lost more value.
There were times when people took any money they got and immediately went to spend it before it lost more value.  Worst cases they had to use wheelbarrows to haul it to the store.  Or they printed trillion dollar notes like zimbabwe did.    So the velocity of money would go up and the interest rates would be sky high.
For you personally the money supply hurts  you when it goes up as your money is worth less due to the law of supply and demand.  With more money trying to buy same amount of goods prices will go  up.


Why is so much of macroeconomic theory dedicated to economic growth? I'm an economics PhD student and throughout my macroeconomics education I've found the topic of economic growth always being discussed at great length. From an Naive perspective id expect that one of the main topics should be around the distribution of income and inequality (i.e. Bewley models) as these seem to be some of the more policy driven discussions these days (at least in the first world hemisphere).

With this in mind, why is economic growth such a core part of macroeconomic analysis?

Have you read:

Barro and Sala-i-Martin (2004, 2e), Introduction
Acemoğlu (2009), Introduction
Paul Romer (2016), "The Deep Structure of Economic Growth"
Robert Lucas (1988), "On the mechanics of economic development", Introduction:

  I do not see how one can look at figures like these without seeing them as representing possibilities. Is there some action a government of India could take that would lead the Indian economy to grow like Indonesia's or Egypt's? If so, what, exactly? If not, what is it about the 'nature of India' that makes it so? The consequences for human welfare involved in questions like these are simply staggering: Once one starts to think about them, it is hard to think about anything else.

Ultimately what one believes is the most important topic is a subjective/normative question, but I think the above pieces make a strong case that economic growth should be it.

At its core, the fixation on growth follows from the assumption of an endlessly growing population.  Maintaining or improving on the utility-maximizing outcome with a growing population means that, in real dollar-denominated terms at least, growth of the economy must occur.  The reason I say "must" here is that whether your favorite social welfare function is Rawlesian or utilitarian, you're maximizing it with respect to a constraint that, under the assumption of positive population growth with no commensurate economic growth, becomes more restrictive with time.

This is not to say that equality considerations are unimportant - just that, if we could wave a magic wand today and solve that issue, it would remain that growth is necessary, because economists assume that population growth is inevitable.  There are deep and interesting philosophical discussions to be had about population growth, but as China will surely illustrate in the coming decades, these are conversations best kept rhetorical.

EDIT:  I should qualify that I think that the fixation on growth as measured by GDP has long been uncoupled from the fundamental argument I'm making here - and that the luxury of simply not talking about population growth as an item for policy consideration isn't one we can enjoy forever.


Do free-trade agreements typically include clauses relating to services? Do free-trade agreements typically include clauses relating to services?

For example, reciprocal recognition of professional qualifications.

The simplest answer is: some do, some don't.

Trade in goods and trade in services are dealt with quite separately, so structurally, you wouldn't find a couple of clauses on services within an FTA.  You would generally find a chapter on goods and (possibly) another on services, reflecting the division in the WTO between the GATT (goods) and the GATS (services).

Quantitatively, there is a roughly equal split between goods-only agreements and agreements that cover both (153 for goods only and 154 combined agreements have been notified to the WTO as of December 2018).

You also often find a group of countries negotiating a goods-only FTA first, then extending to cover services later on (for example by adding a protocol to an existing treaty).  This reflects the fact that an integrated services market is usually seen as a "deeper" form of integration than tariff-free trade.

No, but there is a proposed free trade in services agreement on the table, but reciprocal recognition of licenses isn't intrinsically part of it.  However, it does have a provision that once a trade barrier is dropped, it can never be reintroduced in some form.  So, for example, a Canadian physician cannot practice in the US and vice versa automatically, but under the proposed treaty, if the two nations acknowledged the validity of each other's licenses, then they could never reverse that decision.


A national accounting calculation The question that I am trying to answer is as follows:

  For a given year, South Africa's Gross Domestic Expenditure (GDE) is R 3 251 414, imports are R 987 781, and exports are R891 562. The table below lists the taxes and subsidies applicable to the South African economy:
  $$\begin{array} {|l|rr|}
\hline
\text{Taxes on production} & \text{R} & 54\ 166 \\
\hline
\text{Taxes on products} & \text{R} & 338\ 792 \\
\hline
\text{Subsidies on production} & \text{R} & 14\ 358 \\
\hline
\text{Subsidies on products} & \text{R} & 18\ 684 \\
\hline
\end{array}$$
  The gross value added at factor cost is

  A. R 2 795 279

  B. R 2 863 543

  C. R 2 835 087

  D. R 3 155 195

  E. R 3 347 633

My Answer is R 2 891 498, because I took the GDE and added subsidies and subtracted taxes. I did that because I assumed that the GDE was given at market prices. I disregarded the information about imports and subsidies because I assumed that GDE was calculated using the equation Y=C+I+G+X-M.

I disregarded the information about imports and subsidies because I assumed that GDE was calculated using the equation Y=C+I+G+X-M.

This is where I went wrong. GDE is calculated as C+I+G, but to get GDP at market prices, I need to add nett exports.

Answer is A. R2795279

You take GDE, add Exports, less Imports and get GDP. That is GDP @ market prices.
Then you work backwards, in stead of adding taxes, you deduct them & instead of deducting subsidies you add them.

GDP@ market prices=GDE+X-Z=3251414+891562-987781
                                     =3155195
GDP @ factor cost=GDP @ market prices - taxes + subsidies
                                 =3155195-54166-338792+14358+18684
                                 =2795279


Sanity of lending out made-up money Background
I've done some research to get an understanding into the issue I want to ask about. Regrettably, I found out general descriptions of the mechanism and/or evidently biased explanations, which I've got no means to question. Please excuse me if I refer to a concept in a less than optimal terminology. I'm a bright guy but definitely not a scholar of economics.
Please note that I'm not asking for how fractional banking works in mathematical terms. I'm questioning the sanity of it. Well, not questioning - rather not grasping how it differs from hiding the lack of funds.
The traditional approach
Alice owns X units of currency but doesn't use them. Bob comes by and asks to borrow it for a period of one unit of time. As a reward, he promises to return 5% higher amount. Carol comes by and makes the same request with the difference that he promises 10% return on the investment.
Alice considers the chances of the money being paid back in full including the interest as corresponding to the pay-off (e.g. Bob pays up 1.05 X with the probability of 95% and in any other case he's good for nada, zero, ziltch). Alice regards the offers and realizes that there are three options (partial investment of X units isn't of interests).

Keep the money in the mattress (0 risk, 0% gain).
Present the money to Bob (5% risk, 5% gain).
Present the money to Carol (10% risk, 10% gain).

Here, Alice might ask himself if the inflation forces him to invest into anything, if there's any slightest difference in correlation (5% gain but 5.01% risk) etc. But that's not the aim of the question.
The mechanics of the above is obvious to me. The bigger the risk (time the money invested), the bigger the gain. If at loss, only the amount being risked is lost. I.e. only the money risked to get the gain is being risked to getting lost. This part I view as sane and self-controlled.
The banking approach
Suppose there's this typical bank, Bank of Scandinavia. As far I've understood the regulations, it's allowed to lend more money than it actually possesses, as long as it doesn't go bananas. The government of Scandinavia decided that the bananas level starts at 50%, meaning that if BS owns 10 X units, they can lend out 20 X without being considered unstable.
This part puzzles me, because the gain of the bank is being generated based on equal parts of the money risked to getting lost and some money that doesn't even exists.
It's my understanding that the stimulation of the economy is far greater using this approach. I also hear that the wealth created this way is sustainable, at least if we keep the bananas level fairly modest.
As far my research went to its conclusion (and by that I mean that I got tired of googling and watching suspected cartoons on YouTube claiming to reveal the ugly truth), I've learned that some governments set the bananas level to 10% (meaning that BS could lend out 100 X). In fact, during a period, there was the level of 3% in US and it was frown upon as too restrictive.
Main question
Is it correct to regard the lending set-up as unhealthy, bound to implode and cause mayhem (at an extremely low risk, which in practice guarantees that such won't take place)?
Or is there a regulatory system covering either the tiny-whiney risky part or, alternatively, a means to recreate and pay back the part of the lost money that wasn't really there? Are there other gains to this set-up except boosting the economy (at incrementally larger risk)?

There are two ways I can think of interpreting this question.

My first thought is that a single bank doesn't lend out more money than it has, but the banking system does. So let's say someone deposits 100 dollars in Bank A and the reserve requirement is 10%. Then Bank A can lend out 90 dollars. Let's say that money is deposited in Bank B eventually. That bank can then lend out 81 dollars. This money then gets deposited in Bank C eventually, and it can lend out 72.9 dollars. This process continues, and if you take the sum of all this lending, you get that the money supply is now:

$$\sum_{n=0}^\infty 0.9^n(100) = \frac{100}{0.1} = 1000$$

So the banking system can lend out 1000 dollars without being considered unstable under this 10% reserve requirement. Notice how it kind of looks like we are double counting the money that is in the economy, and that's the point of fractional reserve banking. There isn't actually 1000 dollars, but there is credit worth that much floating around in the system.

The second way you could argue though is that individual banks in fact can lend more money than they have in their account. It creates an electronic record crediting the borrower's deposit with the sum of credit. So here, the limitation is still the reserve requirement. Say Bank A gets a deposit of 100 dollars. It can then lend out 1000 dollars at a 10% reserve requirement. Since it doesn't have 1000 in cash, it gives out credit.

I think that the real economy will use a combination of these two methods to get its lending out, but regardless, the result is the same. A simple money multiplier.

Edit: To reiterate (read: copy-pasted) from the comments below, how can a bank lend out credit that isn't backed up by paper/physical money?

FDIC insurance from the central bank, but more to the point,
The bank isn't going to back up all the credit at the same time. Say in our above scenario (100 dollars, 10% req.) the bank lends out "air money" of 5 dollars to someone, who then spends the credit purchasing from a business. The business then claims on that credit, and the bank still had some reserve (10 dollars in cash) to pay the business. Meanwhile, the bank, because it lent out so much credit, is also collecting a lotttt of interest, and borrowers pay back that interest...in cash. That replenishes the reserve. So in an equilibrium money market, hopefully the rate at which the bank gets cash in interest is the same as the rate which they pay back the "air money" with that actual cash.

Take the car example from in the comments. That is, say you "promise both your friends a car, but you only have one car and both friends know this". Well, the analogy is a little stilted, not quite parallel to what a bank is like. If you were a bank, you would only lend (not give away forever) out the car if you were promised to get it back with some interest, (maybe more gas or something). Problems only happen if both friends want the car the same time.

Yesterday I promised my wife that if she would do the dishes, I would sweep the floor.

Five minutes earlier, my promise didn't exist.  I created it myself.  Does that strike you as unhealthy or bound to implode and cause mayhem?


In Supply and Demand is Quantity the Amount of Inventory of the Amount of Units Sold? I am new to economics in school and we are going over supply and demand.  This may sound like a very simple question, but I just need one thing clarified.  When quantity is mentioned in the graphs is that referring to our total inventory or just the number of units sold?  Thanks.

Demand and supply are functions indicating the price at which a certain quantity would be traded. They represent the intentions of producers and consumers to buy or sell a given quantity at a certain price.
Reciprocally, you can consider that these curves show you, for a given price, how much the producers would sell and how much the consumers would buy.

Now in reality, for the portion of the demand curve which is higher than the supply curve (ie. Consumers would buy the quantity at a higher price than producers would sell it), the market clears the quantity in question at whatever price lies in-between. The portion of the graph where the demand curve is below the supply curve can contain some inventory: that's exactly what the order book of a stock exchange is, with bid (buy) and ask (sell) offers.

In a typical price-quantity graph, such as this for a monopolist from Wikipedia, the quantity is the amount produced and sold


Government bonds and printing money Wikipedia: If a central bank purchases a government security, such as a bond or treasury bill, it increases the money supply, in effect creating money.

My question is: what is the difference between this (government issues bonds and the central bank buys them) and directly printing money? If any. If there is no difference, then why would a government chose one way or the other?

The difference is that in buying the bond, the central bank now owns a bond, and a fiscal deficit has not been directly monetised.

That means that:

the government will have to keep paying interest on the bond, to the central bank, and will have to redeem it if it's not a perpetual. Remember, some governments are completely distinct entities from central banks, with no guaranteed way to move money between them in a consequence-free manner: the Eurozone governments are a good example.
The central bank can sell that bond when it wants to, giving it an extra means of contracting the money supply.
Currency speculators are less likely to start circulating around the currency like vultures that have spotted dying prey.

New theory here, all that economic jargon i studied is inccorrect, There is no initial difference between printing money and building a bridge instead of using the issue of bonds and hence giving the central bank duty over the money supply, which now has less control due to fractional banking. The banks can now print money backed by debt and with this newly created debt they can loan more money and hence fractional banking. The bank only needs a deposit for the first loan, the second and so on are created through digitally created money that will last until the original loan is paid off. This is why boom bust cycles are out of hand, as loans backed by loans can grow rapidly, but if the original loan or a large enough fraction default the whole printed money is no longer backed, making all the loans subject to a liquidity crisis, the money that secured them is no longer there.

Instead if the governent had a limit on printing at 25%, it could create bridges and pay itself back increasing and decreasing the money base at different times. Otherwise issue of bonds create interest payments that are not subject to tax. So the government is moving parts of the economy out of it reach, creating a super upper class. On top of that the interest payments will be more then the tax revenue collected from the government project as government is not a profitable company and its tax revenue is generally well under 5% growth. SO effectively the government is using tax money to pay no benits or debt all the tax paid for interest does not help the public.
SO the government needs to have no debt or it will slowly loose buying power and become ever more reliant on debt. Fractional banking needs to be disbanded as every time the bank creates more money it does it at the expense of dissolving normal peoples income and if a crisis happens the banks are at great advantage in buying power over the population. Why because they were making money of printed money and hence have decreased everyone's income proportionally accept their own and even if loans default, what money did the bank loose, just the money they printed. The only money that is theirs was the deposit which generally is average peoples savings so even if the original deposit is affected its people that loose. SO when everything is going up banks earn money from decreasing your income through inflating the money supply and when everything goes down, banks will be the last person to loose money and hence have more buying power when things are cheap. Lastly while this is all happening the government is loosing tax dollars to interest payments and hence loosing its effectiveness to benefit the public and at the same time creating a super class who own the debt, collecting tax free payments from paying for a share in your tax money. Effectively the government is selling their future tax income your money to build something now and if you know anything about debt you will know unless you can earn more off that debt than the interest rate there was no point getting it, not to mention the bigger the debt gets the bigger the tax free economy of the super rich becomes making governments tax revenue potential shrink.     And hence the greatest con in the world is a lack of education, so people dont understand whats actually happening.


Is an increase in the money supply (by buying government bonds) recorded in bank deposits or bank reserves? When the central bank pays 100 shekels for a bond held by the public, it is assumed that the 100 shekels are deposited. In this case, shouldn't it cause a 100 shekels increase in the bank deposit rather than in the bank reserve?

No.

Think of it as the central bank is buying the bond from the commercial bank itself, so that the bank was holding one type of asset (a bond) and now it's holding another type of asset(cash or its equivalent, reserves at the central bank). At that point deposits have not increased, it's just, that the bank now is holding more cash and less bonds than before. Because cash holdings or reserves at the central bank are called 'reserves', the commercial bank's reserves have increased.

The next step is that this bank sees no benefit in holding so much cash, more than the regulation forces it to, so ti goes and lends this cash out. At that point deposits start increasing, but still, the whole of the banking system is going to have more reserves than before because somebody is going to be holding that cash.

The question is poorly worded as currency can form a component of reserves.

But that aside...the example is essentially correct.  Not mentioned (and this is confusing) is that there are paper shekel's (currency) and electronic shekel's.  When that central bank created 100 shekels, it created 100 electronic shekels.  Put another way it granted the bond seller's bank a deposit at the central bank worth 100 shekels.

So what constitutes reserves?  It is all paper money deposited at a bank + all deposits the bank has with the central bank.  All central bank deposits (or electronic shekels) are automatically counted as reserves, which is why the instant the central bank fabricated their electronic shekel, aggregate reserves increased by 100.  Naturally banks don't keep all reserves on deposit and gamble away a certain percentage (the multiplier) which leads to the answer.


How to calculate average buy price when you buy, sell and rebuy I wanted to get my avaerage buy price for some stocks I bought and see if I made money.

So far for just buying and then later selling I have been calculating the avaege buy price using this formula

((stockamount * price) + (stockamount * price)) / (stockamount + stockamount)

so If I buy 10 shares at 2.00 and 5 shares at 3 I would get average buy price of

((10 * 2.00) + (5 * 3.00)) / (10 + 5) = 2.33

This is how I have calculated the average sell price as well.

Recently I have bought some shares, sold them at a higher cost, and then re bought some when they slightly went under what I sold them at.

I have no idea how to figure out my average buy price in this situation because I re bought some.
here is sample data
bought 10 @ 2.00
sold 7 @ 3.00
bought 2 @ 2.50
I thought maybe doing something like this

((10 * 2.00) - (7 * 3.00) + (2 * 2.50)) / (10 - 7 + 2) = 0.8

It does not make any sense that my average buy was 0.8

I have searched but cant find the answer to a buy, sell and rebuy. if someone knows what the correct formula is to calculate the average buy price when you buy, sell and rebuy please let me know.

Thanks!

I am a Canadian, and under Canadian tax laws, I think there are at least two ways of determining your cost basis for shares. I am not going to get into the details of tax accounting; please see a qualified tax professional for advice.

However, if you just want to track your profit and loss for analysis purposes, the standard way of determining the book value of your positions is to track the average cost. You track the number of shares you own, and their total cost.

When you buy more shares,

the total cost goes up by the total you paid in the transaction (=(# shares in the transaction) * (transaction price)),
the number of shares increases by the amount in the transaction

You get the average cost by dividing the total cost by the number of shares.

When you sell, the price you sell at does not matter for the determination of your average cost. You reduce the number of shares by the number of shares in the transaction, and you reduce the total cost by the (average price)*(number of shares in the transaction). This means that selling does not change the average price, just the number of shares.

Your profit on selling is based on comparing the selling price to the average cost. This would be the “cost of goods sold” in inventory accounting. (If you want more details on this subject, you could look for primers on inventory accounting on the internet.)

What you appear to want to do is to roll the profits or losses from a sale into the total cost. That is, if you made a profit, use that to lower the “total cost” of the shares so that you can compare that average of that “total cost” to the market price, and quickly tell if you are profitable.

Although that might be convenient, it probably would not be acceptable under most accounting conventions (so no textbook will tell you to do it that way). It also would give some strange-looking results. If you made \$1 million profit on some shares, and then sold all but one of those shares, you would have a “cost” of about -\$1 million for that one share. Most people would look at you funny if you showed them that number on a spreadsheet.

I am not sure that thi is what you want but you must always work on purchases and stock to calculate your average. what I mean is that if you purchased 10 shares at 2.00 and 5 shares at 3 average will be as you calculated 2.33.
Then you have bought 10 @ 2.00 this must go as:
New Waited Average Price =((stok * price) + (10 * 2.00))/(stock + 10) = new1

Then sold 7 @ 3 so you got a newStock with stock waited average price is still "new1" after that you bought 2 @ 2.50 so waited average price will be now:
New Waited Average Price =((newStok * new1) + (2 * 2.50))/(newStock + 2) = new2

Hope this help someone.


Raising interest rates to prevent inflation I am reading a book about the Mundell-Fleming Model and I have encountered a part which says:

  The Fed raised U.S. interest rates several times during 1994 to prevent U.S. inflation.

Isn't it the other way round? I thought that rising interest rates causes the investment to decrease and so the money demand to decrease. When money demand decreases, price level increases. Am I wrong?

The increase in interest rates make borrowing more expensive and therefore businesses and people will borrow less. Therefore, investment and consumption decrease. Through the multiplier effects, this will cause a reduction in real GDP. This will also increase the unemployment rate. Therefore, people who sell these goods and services will reduce their prices. As a result, the overall price level will fall and the inflation rate is reduced. I understand that explanation where the money demand decreases cause a probable eventual reduction in the interest rates. However, this assume that the money supply is fixed. Now, you must understand how the Fed controls the interest rates. It controls the interest rates by controlling the money supply. It reduces the money supply by selling bonds into the economy. Therefore, the money supply shift to the left and initially, the interest rates soar. The demand and supply analysis:

First we must define some basics: We are going to use the supply and demand graph with the interest rates as the y axis and the money in x axis. Now since we know that there is a fixed amount of money in the economy and the Fed is controlling it, we know that the supply of money is strictly vertical and the demand for money is downward-sloping (with a certain elasticity)
The mechanism of the money diagram: In a fixed money supply, if there is an increase in demand of money, the demand curve will shift to the right. Now if there is a a positive inflation rate, there is an increase in demand of money with every inflation rate and therefore the demand curve will shift to the right.
The fed aims to  reduce inflation by increasing interest rates. They do this by reducing the amount of money in the economy and thus shifting the supply curve of money to the left. You are right when the total quantity of money in the equilibrium point will be reduced. However, I think that you are confused why the interest rates will not go down. This is because the Fed aims to reduce positive interest rates and not cause a negative inflation rate. In argument (2) I have explained that with a positive inflation rate, the money demand curve will always be shifting to the right. Therefore, the Fed only wants to reduce the speed of that shift.

Now you wonder why the Fed wants to reduce the inflation rate. This is because it is always desirable to have a steady price level. A high inflation rate causes some cost to the economy that it does not want. You need to google or search in the wikipedia for the negative effects of high inflation rates.

Raising interest rates increases inflation.

Economists rarely study Business eve less Cost Accounting.

Companies sell with 30 to 60 terms of trade, and when interest increases from zero, to 10%, a didactic example, their Trade Prices increase 10 or 22%.

Unfortunaely, Economics do not incude these prices in their inflation indexes when they are paid, 60 days in the future, but when the transaction occurs.

So they are including tomorrow's inflation, 60 days into to future, in today's inflation rate. That will create a vicious spiral of inflationary pressures.

I have explained this to every single government Economists in Brazil, and I get the sense that cannot admit that they have been the main cause of inflation over the last 100 years.


Interest rate determination in the real world I have just learnt about the demand and supply framework for money and how the equilibrium interest rate in an economy can be determined. In theory, based on that framework, an increase in nominal incomes would lead to an increase in the demand for money, causing interest rates to rise. However, in reality, I don't see that occurring. In fact, in reality, say in the United States, rates are often set by the Federal Reserve through manipulation of the money supply. To me, rates don't seem to change as a result of changes in nominal incomes. Why is this so?

There is one more element to take into account into this demand and supply schedule: how does the central bank conduct it's (traditional) monetary policy? There are two options:

decide on base money supplied and let the money market interest rate be determined endogenously as the money market equilibrium. In this case, for a given money multiplier, the supply of money is vertical and the interest rate adjusts to clear the market. In this case: an increase in money demand does affect money market rates;
decide on the appropriate interest rate and let the amount of base money supplied to the market be endogenously determined by the money market equilibrium. In this case, supply of money is horizontal and, at the central bank will supply all the base money that is demanded by the financial sector at the chosen interest rate. An increase in money demand is now completely accommodated by increased money supply.

The role of nominal incomes in shifting money demand seems, at least to me, mostly related to periods of volatile inflation rates: if prices suddenly increase by 5% you'll need 5% more money to finance all transactions. So, households, firms, banks, ... will want to keep a slightly higher cash balance.
So, two reasons why rates may not respond to nominal income:

nominal income affects money demand, but increases in money demand may be, depending on the policy instrument, completely accommodated by increased supply;
fluctuations in nominal income may not be a dominant driver of changes in money demand. In this case there may still be a causal effect, but it's just of crazy small importance compared to other factors that shift money demand.

Models based on supply and demand little insight into real-world interest rate determination. The most important factor (but not only) in determining the yield of bond that is free of default risk is rate expectations: what is the expected cost of financing the bond at the short rate over the lifetime of the bond? Once that factor is accounted for, we can then turn to other considerations will influence the price. These other factors are lumped into what is called the “term premium.”

This is a disputed topic, and some academics will make arguments to the effect that “rate expectations do not determine bond yields.” However, that is largely equivalent to saying that the term premium is not zero, which is not really disputed. You would need to search through the literature on the term premium to get an idea of the magnitude of term premium estimates. However, from the perspective of people who are not familiar with bond markets, most term premium estimates are small (less than 1%), and so the thing they are most interested in are the level of rate expectations.


Printing money to redistribute wealth A fictional country has 100 people. The total printed money is $2000. Ten rich people own half of it ($100 each), the remaining 90 are comparatively poor : ($\$2000 = 10  \times \$100 + 90 \times \$11.11 $)

To make things more even, the government decides to print another $2000 (no independent Central Bank here) and give them to all inhabitants, $20 each. Surely, this triggers inflation, prices double. But the net result is a redistribution of wealth, the poor are now less poor than before.

This looks as a simple progressive tax scheme which is beneficial to the poorest people. It could even be applied in some periodical and predictable way.

Of course, this is utterly stupid and cannot work - I guess. Why?

The main problem is that wealth does not equal cash. Those ten rich people probably have most of their wealth in real estate and stocks. Imagine all you own is a Lamborghini, then the government prints a lot of money, does that impact you?

Depending on the situation the money printing may be progressive or regressive. And the cost are high: There will not just be one inflationary moment, there will be inflation because the initial inflation breeds an expectation of even more inflation leading to hyperinflation.

Finally when you've done this once, nobody will ever want to hold your currency again because they distrust you. Leading to a number of other problems.

@JFugger_jr 's answer seems quite all right but I have one addition:

In most economies, the money supply has vastly increased over the years (around 5% yearly for the euro), yet people are not massively fleeing from the currency.

As @JFugger_jr said: The more assets you have outside of the currency, the less you will be penalised by the expansion of the money supply (regardless of who gets the new currency). Thus the 'strategical' choice for a currency holder to make in the current is exactly the same as in the system you are proposing. Flee the currency, or you will experience demurrage.  Yet people are not completely abandoning the currencies of these economies (in most cases), as they have to pay taxes in them.

If it isn't clear: My argument is that the arguments against an 'equal distribution of minted money' are just as valid against the current system, where money is created through methods like open market operations or quantitative easing.


How does reverse repo rate affect money supply? What is the impact of increase/ decrease of reverse repo rate on Monetary Base, Money multiplier and therefore, overall money supply?

Reverse Repo Rate (RRR) is the rate at which the central bank "borrows" money from commercial banks. (In practical terms it refers to the surplus funds that these commercial banks park with the central bank.)

This leads to a FALL in the total money supply as it soaks liquidity from the market.

This reduction in total cash flow in economy (which is now lying stagnant at the central bank) implies a weakened monetary base and reduced capability of banks to "create" more money as they are left with little real cash to extend loans upon given the cash reserve ratio requirements.