How to find opportunity cost if each choice has more than one important effect? Let me start with an example where I DO understand how to find opportunity cost.
Suppose I have choice to either work for firm A (\$1000 wage) or for firm B(\$2000 wage) or for firm C(\$500 wage). If I choose frim B, then I will forgo my best out of remaining alternatives, namely wage that I would get working for firm A.

Now let's add another aspect:traveling time. Working for different firms will imply different time needed to spend on traveling back and forth between my home and work. Suppose I can't monetize saved time, but I prefer to have more free time nonetheless.

I have three choices, between firm A(\$2000 wage, 2 hours traveling time), firm B(\$1500 wage, 1 hour traveling time) and firm C(\$1200 wage, 0.5 hour traveling time). Suppose I chose to work for firm B, what will be the opportunity cost of such decision? Two things confuse me in this case. There seems no clear way to pick the best alternative and then declare its effects (i.e. wage and traveling time) to be opportunity cost. Firm A offers better wage than firm C, but firm C offers lower traveling time than firm A.On ther other hand, our choice has two effects (wage and traveling time), is it really correct to take them both and declare as ONE opportunity cost, rather than two separate opportunity costs?

Note that as a rational agent you will have preferences on the set of (wage, free time) bundles. Your own answer suggests that these two "goods" are perfect substitutes, but this is not the general case. If your preferences are given by a utility function you can calculate the utilities for the three bundles in your choice set and then proceed in the way you indicated, measuring opportunity costs by utils foregone.

Alternatively, you can for each of the three bundles find a respective indifferent point at the maximal-free-time line in the space of bundles (corresponding to zero traveling time) and compare the wage levels of these points to get a monetary measure of opportunity costs. This corresponds to converting the traveling time contained in each bundle to some wage loss which you would be prepared to face if traveling time could be eliminated from the respective bundle. (If your preferences happen to be quasi-linear in money, this amounts to calculating your willingness-to-pay (WTP) to avoid traveling time, but in the general case this WTP need not be independent of the wage level.)

I had an insight. We just need to convert both effects into utils. Wage will be positive utils and time wasted will be negative utils. Then we will need to sum up positive and negative utils for each choice. Then the best of remaining choices will be the one with the highest amount of utils. And there will only one opportunity cost, namely utils foregone.


Why may printing trillions of dollars not lead to inflation? By definition, inflation should be affected by the increase of the money supply. During the pandemic, there have been numerous huge monetary policies executed, e.g., quantitative easing (QE), injection liquidity into the market by increasing the monetary base.
A lot of people say that this will lead to inflation and you have to save your wealth into rather deflationary assets, like gold or bitcoin. However, a lot of economist argue that the picture is way more complex than this. For instance, a supply shock should lead to inflation, but high unemployment should keep it down.
Even if inflation would not be significant in the short term, or significantly higher than the target inflation, why wouldn't there be a huge inflation in the short to mid term?
I know once the economy is healthier, central banks can raise interest rates, and that would slow down the economy and would cause deflation. But, still, this kind of huge money printing could only be cured by very radical interest rate increases, which may not happen at all.

An important subtlety
In the literature, the words "inflation/deflation" are often used to describe "any increase/decrease in the price of a good for any reason". If some kind of crisis causes the value of stocks to drop by 10% and a monetary scheme like QE is implemented to bump the stocks back up by 10%, then some would say that the inflation is zero.
However, it is clear that the stock prices are now 10% higher than they would have been without the injection of money via QE. We could say that the price is inflated relative to a case without such intervention. From this viewpoint, any expansion of the monetary base must be inflationary, since it will always raise the prices of some assets/goods/services relative to the price without the intervention.
One could argue that the 10% drop reflects a real change in the state of the economy (people are more interested in having the funds to see themselves through an immediate crisis than to invest long term), and that injecting more money into the system to prop up the value of stocks that nobody would want to buy in the absence of QE is unnecessary.
To answer your question in short, if one uses the broad definition of inflation, it is indeed possible to do the exact right amount of QE to make sure the price in dollars and cents of assets do not change as a result of the crisis in the short/medium/long term. If one uses the more narrow definition, QE and similar interventions are always inflationary.


On trade, What justificaion does the USA have to accuse China of 'selling too much not buying enough from USA' There's a trade war (dispute) going on between USA and China, and it boils down to the USA accusing China of not buying enough American products, relative to what they sell to America.

Putting aside other accusations such as currency manipulation, cyber security hacking, etc. If we just focus on this central accusation of 'You are not buying enough of my stuff, while selling too much stuff here!"

I don't understand how that can be a valid 'accusation'. Buying and selling are willing actions taken by market participants, made as a result of their own economic situation. China has total freedom to decide what and how much to buy (import) from any country, as does the USA. If China decides not to buy certain products it probably means either it thinks those products are too expensive, too low quality, or maybe China doesn't need them. Same with USA - it decides to buy certain products from China at certain amount because it has decided it is the right product at the right price and amount. My point is, USA can decide to buy however much from China and vice versa. These are willing market participants.

If so, how can any country 'accuse' of another of not buying enough or selling too much? Whatever China sells is agreed to be bought by USA, it's not like China forces USA buy its stuff. And whatever China buys from USA is its own decision.

The US president see’s trade as a zero-sum game, where there is always a winner and a loser, being the winner the one who sells more to the other. This view is not shared by most economists, as the mainstream opinion is that international trade is beneficial for both parties (see Ricardo or Krugman for examples).

In the US’s president mind, “to win the game” they must restrict the sales of Chinese goods, using tarifs or quotas. The US can either produce these goods or import them elsewhere. The Chinese, however, are expected to have no other alternative but to keep importing advanced goods, critical for their economy, such as aeroplanes parts from Boeing.

The expected outcome from this policy is less competition for national producers, potentially resulting in more jobs and higher profits. However, end consumers might end up facing higher prices for several goods, resulting in lower real incomes.

When you start importing products from China, you are exporting your jobs to China. It's called outsourcing of jobs.

That's ok as long as you are also exporting products in China, and then China is also outsourcing their jobs into the USA.

Say USA is importing Chinese cars valued at $10 billion. That removes say 10,000 jobs from the American car making industry and those jobs are sent to China.

But you also export cars to China - valued at $10 billion. That removes 10,000 jobs from the Chinese car making industry and those jobs are sent to the USA.

It's ok to have high amounts of international trade. What is not ok is to have a trade deficit. If your imports are above your capacity to export, that means the American jobs are sent into China

These "economic experts" Etalia is talking about are always trying to create confusion and to convince you that you have to increase the poverty in order improve the economy. And they are intensely promoted by the mainstream media. That's the very reason why I'm not watching the media since many years ago and I recommend everyone else to do the same.


Is loss in tax revenue a negative externality? I was thinking about how online gambling could cause numerous governments to face a reduction in tax revenue from conventional gambling, upon which taxes do apply in most countries.

If governments do face such a loss in tax revenue, would such a loss in tax revenue be considered a negative externality?

In my view yes, it would be considered an externality. An externality is said to occur when a production or consumption decision of an individual has an unintended consequence on the consumption or production of someone else.

The analysis of externalities usually does not include governments, considering only production and consumption, but one can think of the government as a firm that produces public goods like law and order and national defense.

In that case the decision of the individual to use online gambling rather than conventional gambling has an unintended effect on the production possibilities for the government. Now that the government has less revenues, it can produce less public goods.

When a person goes for online gambling rather than conventional gambling they do not intend to reduce the overall provision of public goods, they just went for online gambling because it was more convenient/cheaper etc.


Solow model reparations I have the following task:

At some moment of time (1953), the government of a country (Israel) signs an agreement with
another country (West Germany) stipulating that West Germany would pay reparations to Israel
during the following N years. For simplicity assume that N is large enough, that the amount or
reparations is proportional to Israeli output, and that the economy of Israel reaches the new steady
state while the reparations are stil paid.

Need to use Solow model. But I really do not understand what the change will happen. Probably it is the same as an increase in s. Help is needed.

What changes is the macroeconomic identity of the model: from
$$F(K,L) = S + C$$
it becomes

$$F(K,L) + V = S+ C = (1+v)F(K,L) = S+C$$

where $V$ denotes the value of reparations per period, and the last expression reflects an assumption made in the question, that reparations are a constant proportion of domestic output.

"Using the Solow model" means I guess, using the standard Solow model, and so it implies that you don't change its basic assumptions. So there is no distributional issues related to this transfer payment from abroad, while also the savings rate remains fixed, and it is applied to the whole available income (irrespective of how it becomes available). I guess you can take it from here.

PS: It appears interesting to also consider a fixed level of $V$, which would reflect a situation where as time passes and the domestic economy grows, reparations become less important in relative size (which is a "reasonable" scenario, something like "we will help more when you are weak, and as you get economically stronger, helped also by the reparations, our contribution will diminish in relative importance")

In which context did you have this question ? Is it an homework ? It is interesting.

What happens with this reparations ? Are they redistributed in the economy by some social system ? the more crucial question is if these reparations make increase savings of people.

Also, how this money is redistributed between different social classes ? as propensity to save changes according to social classes, the increase in savings will be different.

In the classical solow growth model, countries with different levels of savings will converge to their "own" steady state, which we name as "conditional convergence". So, the long term equilibrium is dependent on the structural characteristics of this economy. In this case, for sure, a country receving huge amounts of money will have another steady state. (by the channel of increase of savings, there could be other structural changes other than changes in savings)


Why in the quantitative equation: $MV=PY$, $V$ and $Y$ can be taken as fixed? To  equation is
\begin{align}
MV=PY
\end{align}
where $V=\frac{1}{k}$.
Why $V$ and $Y$ can be taken as fixed or constant?
Why can $V=\frac{1}{k}$ too?
Thanks in advance

There are multiple answers to this question.

In any model you can always make a thought experiment where you hold certain variables fixed.  So one answer, although not very satisfying one, is that you can view it as a thought experiment. For example, in physics distance traveled equals velocity times time or $D=tv$ and you can always make a thought experiment where you choose 1 or 2 variables that will be fixed and see how others behave.

If you are asking why it would make an economic/intuitive sense to take $Y$, $V$ fixed then:

Regarding $Y$: From economic theory we know that $Y$ in a long run depends on productive capacity of an economy that is independent of $M$, $P$ or $V$ (you can learn more about that in any 101 Macro/econ book such as Mankiw Macroeconomics or Mankiw Principles of Economics). So you can consider it to be exogenously given and holding it constant is just performing a thought experiment where you assume you have economy that is not growing so you can see how other variables behave.

Regarding $V$, in the past (before 2008), empirically speaking velocity of money was very stable (see the Fed graph below). As you can see between 60s and late 2000s it was always hovering around 1.9 so on empirical grounds many economists considered $V$ stable, although it is worth while pointing that recently it significantly declined. Nonetheless, given that it was historically very stable this might be just transitional, or it is possible there was a structural break and now velocity will remain approximately constant at some lower level. It is also possible that it was wrong to assume it is constant in the long run based on previous empirical observations.

To clarify the use of notation this reference shows the definition of slope change where delta notation is used to indicate a finite difference calculation:
https://www.mathsisfun.com/calculus/derivatives-introduction.html
As a thought experiment if one holds $V = 1/k$ and $Y$ constant then:
$\frac{\Delta M}{\Delta t} = kY\frac{\Delta P}{\Delta t}$
which means the finite change in the money supply ${\Delta}M$ over a finite period ${\Delta}t$ equals a constant $kY$ times the finite change in the price level ${\Delta}P$ over the same finite period ${\Delta}t$. If one could perform this experiment in reality it would tend to validate or invalidate the monetarist theory of inflation.
Edit: Below I write out the terms for finite difference calculations to check my logic.
$M_{t} = k_{t}Y_{t}P_{t}$
$M_{t-1} = k_{t-1}Y_{t-1}P_{t-1}$
$k = k_{t} = k_{t-1}$
$Y = Y_{t} = Y_{t-1}$
$M_{t} - M_{t-1} = kYP_{t} - kYP_{t-1} = kY(P_{t} - P_{t-1})$
${\Delta}M = M_{t} - M_{t-1}$
${\Delta}P = P_{t} - P_{t-1}$
${\Delta}M = kY{\Delta}P$


Is it possible to eliminate the U.S. national debt? A political science teacher of mine has said that the U.S. national debt has grown way beyond reach and is now just a political talking point with no real value.  He says that there is no point in trying to pay it back and that it should be left alone since all the money is fiat, thus "imaginary".  What's your take on this?  Is it still possible to pay off the debt in 'x' amount of years without experiencing hyperinflation?

Yes, I imagine there's reason to contest that claim. Consider the GDP to debt ratio. While it has risen over time and with the recent recession, it was not too far away from Germany which is considered, I think, the absolute picture of fiscal health.

Consider also the critical point that the US government does not have a chance of death like a normal citizen. For example, if you take 30 year loan from JP Morgan, they consider the possibility that you might die. It is critical that they acquire this money before that happens- or they will lose their investment! The government does not have such concerns, and as a result face supernaturally low interest rates. Furthermore, they can pay back debt at a leisurely pace, extend their debt frequently, and if the interest rate is below the rate of inflation (Which it has been!), then they actually earn money by waiting to pay it back.

One of the main reasons for the increase in the debt-to-GDP ratio has been not an increase in spending, but a noticeable decline in government income.  The US tax rates are at historic lows. Even worse the US GDP has been smashed by the recession. The debt could be paid back eventually if it were politically feasible to raise taxes while keeping expenditures constant. The banks of the world have bet billions, trillions if you count derivative and second-stage investments, on this feasibility.

Finally, despite the fact that it is fiat money, it would be very unwise to act as if the debt didn't exist.  Note the panic over congress's threat to default. The consequences of even contemplating a default included: higher future interest rates, lower GDP, and  typically, a devalued currency. Conversely, if money is printed to cover the debt, the consequence is hyperinflation, leading to widespread drops in the standard of living. In my estimation,  if the United States did go into a spontaneous and total default, or hyperinflated to pay the debt- this would likely be the greatest economic disaster of all time, given the size of the US GDP currently. This is not hyperbole- I do not think there is a serious macroeconomist who would disagree.

Short answer: Of course it is possible: tax the rich instead of taxing the poor. Put a tax on 10% on the incomes of the rich and with the collected money you will pay a part of the public debt. But pay for the internal debt first (the public debt is the sum of external debt and internal debt). Because the internal debt is made from the debts to the retirement funds and you really don't want them to collapse.

Long answer:

Say for example the US govt. is putting an extra tax of 10% on the incomes of the people earning more than the average income. To make it easier, only tax the people earning more than 110% of the medium wage.

Say for example that the US govt. is also putting an extra tax of 10% on the wealth of the rich - the individuals and families that own more than 300.000 $US

Gather all those money in two separate accounts so everyone can see how much money are collected.

And then use all the collected money to pay a part of the internal debt of the country (the internal debt is a part of the public debt, which is actually the debt of the country).

Link

The taxing the poor "alternatives":

If you increase the taxes for everyone (austerity) then that will hurt the average citizen and the poor, increasing the poverty. But if you tax the rich, then they can surely afford to pay 10% of their income.

If you reduce the government spending (austerity) then that will hurt the people working in the administration apparatus and of the workers of the companies that live from contracts with the government. That also means increasing the poverty.

Printing a large amount of money and then using it to pay the debts means the incomes of the people will not be adjusted to the inflation - so their buying power will be greatly reduced. And that also means dragging the poor into deeper poverty.


Doesnt the fact that cash reserves go down in recessions contradict Keynesianism? It seems cash reserve is procyclical. Also anyone have the financial cash reserve data?

You very often see Krugman an other economists imply that corporations holding cash is a bad thing or affects demand.

http://krugman.blogs.nytimes.com/2011/07/02/cash-is-not-the-problem/?_r=0

However, you have to remember that Krugman is just stating his personal opinion. He does sometimes say things that contradict academic Keynesianism.

The fact that corporations hoard less cash during recessions doesn't necessarily contradict Keynesianism or New Keynesianism, but it does require these theories to explain why corporations behave this way (which the theorists have not attempted).


What is a merit good? I just came across the concepts of merit and demerit goods for the first time, in the Cambridge A-level economics syllabus. I wasn't sure what they were.

Is a merit good simply a good that has positive 'internalities' (benefits that the consumer is unaware of)?

And similarly, is a demerit good simply one with negative 'internalities' (costs that the consumer is unaware of)?

Richard Musgrave (1957, 1959) invented the term. My interpretation of what he says (below) is that merit goods are simply goods that the "community" deems desirable, while demerit goods are those the "community" deems undesirable.

He (1987) writes that the concept (of merit goods) is "best applied where individual choice is restrained by community values" ... "Community values ... give rise to merit or demerit goods" ...

Such goods are where "community values" act "as a restraint on individual choice". The "evaluation of a good (its merit or demerit) derives not simply from the norm of consumer sovereignty but involves an alternative norm."

Examples of merit goods are "Concern for maintenance of historical sites,  respect for national holidays, regard for environment or for learning and the arts."
Examples of demerit goods are drug use and prostitution because they are "offences to human dignity (quite apart from potentially costly externalities)."

P.S. There is of course the difficult question of who or what exactly the "community" is. If I may add my humble opinion, all of this sounds very illiberal and even mildly fascist. Which is perhaps why this concept hasn't been much taken up by mainstream economics.

P.P.S. The above is merely Musgrave's interpretation. As Musgrave himself says:

  The concept of merit goods ... has been widely discussed and given divergent interpretations ... it is thus difficult to provide a unique definition.

No, a merit good is not simply a good with benefits that the customer is unaware of. That imperfect information can be part of it, but it's only one part of the story.

The benefits may be externalities. Or they may be priced in, but the benefit time is so long that customers' hyperbolic discounting means they would never be realised without external intervention.

A merit good does have some characteristics of normal private goods: there is some scarcity; and a non-zero marginal cost. And it has some characteristics of public goods: the market on its own fails to deliver anything close to economically efficient quantities; and intervention is required to mitigate this.

Merit goods are not a superset of goods with positive externalities; some goods with positive externalities are public goods, not merit goods.


Are markets inherently short sighted? If markets are types of "information systems", how do they assist in the attainment of a future common objective that is beneficial or even necessary to a society?  Since markets are driven by individual needs and wants, are such future planning objectives beyond the scope of markets?  So, if markets are inherently short sighted, does that mean we are at the mercy of fate when it comes to large scale global problems that evolve over decades?

Of course markets can be shortsighted. The same problem can apply to any institution though. In order to correct a market failure using government it's necessary to appeal to the self interest of various interest groups, which may end up putting you back in square one.

In short, yes markets are short sighted because they only price goods and services in the here and now. They lack the mechanisms to measure the lifecycle costs of the goods, the degradation of wildlife that we obtain through hunting and fishing, the loss of soil depletion via farming and the opportunity cost of what could have been done with money squandered on consumption and so on.

The decline of the coral reef or the wild Salmon population does not make it into price discovery.


Monetary Policy - How can increasing interest rates cause higher inflation in the short term? My understanding of the interest rates part of monetary policy is the follows:

Borrower's point of view:

An increase in interest rates, increases the cost of borrowing, which may reduce disposable income, causing a reductiong in aggregate demand. The equillibrium between supply and demand will therefore need to be adjusted resulting in a lower average prices (less inflation).

Saver's point of view:

As interest rates rise, the reward for saving increases, therefore people are incentivised to save their money, which may cause a decrease in disposable income and less inflation.

However, I have a question in my textbook which says how can a rise in interest rates cause higher inflation in the short term, and I'm not sure.

If mortgage payments are included in the basket of goods that are used to calculate inflation, then rising interest rates will increase mortgage payments, causing an increase in inflation in the short term. This happens before any of the disinflationary effects show up in the data.

Raising interest rate from a low level will increase borrowing and spending in light that the economy will raise and thus cause the inflation in short term within a range of seven years. And then when the rates are raised to a level that exceed the tolerance of economic bubble, and demand-supply relation rules in which cause final deflation.  Different factors comes into play at different stages in a cycle: expectation, bubble, tolerance, demand-supply.


Are all market demands residual demands to some extent? I’ve been thinking about how the introduction of a new product, say a new substitute, impacts market demand. Intuitively I know that it would decrease demand and increase elasticity. I am curious about the equations.
When thinking about demand shifters and related goods we usually only consider their price in the demand equation because they already exist.
For example - before new entry - we g as the good in question, rg1 related good 1:
(1) Q = $100 - 2p_{g} + 2p_{rg1}$
After new entry, would the equation be something like:
(2) Q = $90 - 3p_{g} + 2p_{rg1} + p_{rg2}$
So, the constant falls and the own slope increases in magnitude. My questions are as follows: (1) For equation (1), can we think of the 100 as the amount consumed given what you consume of the related food? (2) Can we think of a given market demand as a sort of residual demand given the existing products in the market? This is similar to how we think of things with monopolistic competition. I was just wondering if it was implicitly the same for the market as a whole. Thanks.

I agree, in the real world all markets are residual. unlike the theory laboratory where a product is clearly distinct from all other products, in reality there are always substitutes, and there are fine lines between one product and another.


How does real gdp affect the domestic currency? When the domestic real gdp per capita increases then it has a negative effect on domestic currency (depreciation)? Why?

Source: The real exchange rate of euro and Greek economic growth, Gregory T. Papanikos, The Journal of Economic AsymmetriesVolume 12, Issue 2, November 2015, Pages 100-109.

file:///C:/Users/ACER/Downloads/1__Papper_exchange%20rate-gdp%20growth%20(15).pdf

The real exchange rate of euro and Greek economic growth
Gregory T. Papanikos - So i got the information from this source

One way to link both is the J curve reaction of a given country's trade balance, which directly affects GDP, towards fluctuations in the domestic currency exchange rate.


What is a dollar, currently? What is the definition of a dollar now without gold backing?  It seems that a dollar is now just an entry in a book somewhere in some bank.  Or it is the federal reserve note?  Or is it both?  I understand the concept of the monetary base.  But what I don't understand is how this works.  If a dollar is in part just an entry in a book, what stops some bank from simply claiming they have an infinite amount of dollars?  Or is there some central registry that claims to keep track of how many dollars each bank has? (This would seem absurd to me.  How then would foreign banks holding US dollars keep track of how many dollars they had?)  If there is no central registry, then how do you prevent people claiming to have dollars on their books?

I think explaining what a dollar is would go toward answering these questions.

A dollar is money which can be used in the United States to purchase goods and services and to repay debts. It can sometimes be used for these purposes in some other parts of the world.

If a bank says it has an unlimited amount of dollars, then it will presumably be willing to lend them to customers, who will then want to spend them.

The bank will then either have to give the customer dollar bills (Federal Reserve Notes which presumably it does not have in unlimited amounts) or be willing to transfer dollars to another bank on the instruction of its customer.

The other bank may then expect this to be settled.  Unless there are also flows into the first bank to offset the amount owed, it can only settle with dollar bills (but faces the same issue as before) or by instructing a third bank where it has an account to transfer dollars to the second bank.  This can continue up the chain until an instruction to transfer funds reaches the U.S. Federal Reserve Banks, where the top commercial banks hold their reserve deposits.

Other banks will not be impressed with the first bank simply saying it has unlimited dollars if it does not have accounts with other banks with dollars to support the transfers.  Writing numbers in your own books does not change the numbers in other banks' books.  The constraints that this causes is one of the constraints on lending and so on the creation of money.

I believe there is a distinction to be made between a dollar note (money) vs capital.  BTW: Dollar bills no longer exist, they're called "Federal Reserve Notes".  Fractional Reserve Banking concept is key to understanding USD.

Banks make money by lending long and borrowing short.

It's kind of infuriating really to understand how it works.  Banks have capital requirements which are extremely low.  Good luck finding the documentation - I've searched.  It's something less than like 6% or so.  In other words, when you contractually obligate yourself to a 30 yr mortgage and borrow say 300,000USD for a home,  the bank only has to have 18,000USD in it's account to cut your homebuilder a check for 300K which can immediately be cashed (money).  The bank never had the money they lent you, yet they collect interest from you monthly on the whole $300k!

In short a "dollar" is a note.  It represents debt - enforcer of work/behavior.


When can one read the general theory of employment,interest and money? I am a first-year undergrad econ student and was interested in reading Keynes' book. in the preface, Keynes pointed out that the text deals in the abstract and is meant for his fellow economists. After reading a few chapters its become quite clear that he wasn't kidding. there so many theories and ideas that I am not familiar with and most of the ideas are criticised more than they are explained.

So my question is: what prior knowledge do I need to possess to understand the book? Any books you can recommend to acquire said Prior knowledge?
and lastly is the book even worth reading?

I don't think you should read it at any point in your carrer, honestly. It is severily outdated, ambiguous and overall not worth the time and effort put into reading it.

Try Screpanti & Zamagni's An Outline of the History of Economic Thought. Undergraduates do better when studying the works of economists who have been dead for decades as what they are, historical curiosities.

If you are really bent on reading the General Theory and/ or pretend to research history of economic thought, then I'd say after you go through an intermediate macroeconomic theory course you're good to go.


How does an increase in the price of "non-wage-goods" increase employment? Keynes (1936, Chapter 2) says that based on the classical theory, "there are only four possible means of increasing employment", the fourth of which is:

  an increase in the price of non-wage-goods compared with, the price of
  wage-goods, associated with a shift in the expenditure of
  non-wage-earners from wage-goods to non-wage-goods.

What does the above quote mean? What are wage-goods and non-wage-goods? And why would an increase in the price of non-wage-goods increase employment?

P.S. Keynes's discussion here is with reference to AC Pigou's Theory of Unemployment (1933), which I can't find online. It seems that Pigou makes a distinction between "wage-goods" and "non-wage-goods". Keynes mentions very briefly that "non-wage-goods" is "Professor Pigou's convenient term for goods upon the price of which the utility of the money-wage depends", but I'm not sure I understand this.

Wage-goods are goods that a worker with wages might buy, perhaps now more commonly called consumption goods

Non-wage-goods are goods that a rentier receiving profits or interest might buy, including what might now be called capital goods or investment goods

As to how to read Keynes's interpretation of Pigou's position (so actually neither Keynes's nor Pigous's), it might be saying that if non-wage-earners shift their demand towards non-wage-goods, this would have the demand-side effect of pushing up the relative price of non-wage-goods and reduce the relative price of wage-goods, with presumably

either the direct effect of increasing both the number of wage-earners employed producing non-wage-goods and their wages,
or the indirect effect of increasing the real wage for all wage-earners (since their wage-goods are now relatively cheaper) above the previous "marginal disutility of labour", and this encourages increased wage-earning employment (what today would be called a substitution effect)

Yes, it increases the benefit of selling and buying investment goods which will increase the demand for labor. Employers find that they can increase output at relatively lower cost. For e.g., if you hold the marginal productivity of labor constant, and are a producer, then you can now produce more with higher profits because the MPL's diminishing returns can be compensated via higher prices.


If $X$ is a Giffen good then $Y$ must be a normal good While going through some problems as part of self-study I encountered the following True/False question:

Q. Steven only consumes two goods: $X$ and $Y$. If $X$ is a Giffen good for Steven, then $Y$ must be a normal good for Steven.

The given answer is True.

I am unable to understand why it is necessary for the other good to be normal. Why can't it be inferior/Giffen?

Reason: Both goods cannot be inferior.

Let's say originally you consume $x$ and $y$. So your budget constraint looks like

$$p_x x + p_y y = I.$$

If both X and Y are inferior, when income goes down from $I_0$ to $I'$, the quantity demanded for both has to go up (by definition) from $x$ to $x'$ and $y$ to $y'$. This implies

$$p_x x' + p_y y' = I' < I = p_x x + p_y y.$$

This is a contradiction, since $x' > x$ and $y' > y$.

Your question is a bit more specific. But since a Giffen good must be inferior, this answers your question as well.

If the other good is inferior, the indifference curve would be shift to the left and budget constraint shift to the right when there is an increase in income. That would make the consumer have no utility maximization point. cmiiw


Does a store suffering increased theft generally cause higher prices? If a store suffers an increase in theft, will it generally lead to higher prices at that store?
My answer is that prices should have already been set to maximize the trade off between profit-per-sale and volume sold, so that if the store experiences increased costs of business, they cannot recover the loss by passing it onto consumers.  They HAVE to eat the loss, unless prices were set irrationally to begin with (in which case the theft only prompted the store to fix their mistake).
However, the majority of people and articles seem to take it for granted that a store will pass increased costs, such as theft, onto customers.

prices should have already been set to maximize the trade off between profit-per-sale and volume sold

But profit-per-sale depends on costs, which depends on the theft numbers, so if theft increases, the equation changes.

The principle of Supply vs. Demand states that prices increase when supply falls or demand increases. Theft reduces the supply of sellable items, so it implies that the price should increase to reflect this.
However, there can be feedback effects that prevent this from continuing unchecked. Suppose the reason for the theft is that the price is too high for many people to afford, but they still need the item (e.g. basic necessities such as food and water). Increasing the price will simply exacerbate this problem, causing more theft. Competition should theoretically address this: if vendor A charges too much, vendor B can charge less and people will buy from B rather than steal from A. But if the vendor has a monopoly, they need to set price that allows them to make a reasonable profit while not encouraging theft.
Vendors do generally expect some theft and incorporate that into their pricing models, but if theft increases significantly they may need to adjust their prices. It would also be nice if reduced theft resulted in lower prices, but it's likely that companies will simply view this as a happy windfall and use it to increase their profits. Also, it may be possible that this is just a temporary drop; if they reduce prices and then theft returns to its original level, they would have to increase prices again, and customers would view this negatively.


What would be the economic effect of widespread instances of individuals paying off consumer debt? In light of the economic impact of the recent shutdowns in response to COVID-19, the Australian Government is considering bringing forward planned tax cuts, that were do to be implemented gradually over the next five years. The tax cuts themselves aren't too large compared to other economic stimuli currently in action, but I read the following statement on a Guardian article:

The Australia Institute paper, by senior economist Matt Grudnoff, concluded that bringing forward the income tax cuts was an “ineffective stimulus”.
He cited the “simple fact of economics that high income earners are more likely to save or pay down debt with the tax cuts, rather than spend the extra funds to help stimulate the domestic economy”.
“A more effective way to stimulate the economy would be to invest heavily in direct employment programs or focus on supporting those who are doing it tough by maintaining or increasing the current rate of the jobseeker supplement.”

This left me wondering what happens to the wider economy when people decide en masse rather than spending their disposable income on consumer goods/services, to instead  pay down their debt and save/invest?

This left me wondering what happens to the wider economy when people decide en masse rather than spending their disposable income on consumer goods/services, to instead pay down their debt and save/invest?

tl;dr: Answer depends on the situation/time horizon you are talking about. In long run increasing saving and investment will have no negative impact on economic activity. In fact it can even lead to higher long-run economic growth.  However, in short-run and in recession (especially one where economy is in a liquidity trap) it would lower everyone real incomes and depress economic activity.
Full Answer:
To see what mechanisms are in play here we can use little bit of math. This can be done with the standard goods market equilibrium model (see Blanchard et all Macroeconomics: a European Perspective)  Let us start with output/GDP definition for closed economy:
$$Y =C+I+G \tag{1}$$
where $Y$ is the economic output (which in economics must also be equal to people's incomes so I will be using output/income interchangeably). $C$ is consumption, $I$ is investment and $G$ is government spending. In order to get some meaningful answer from the above identity we have to specify what the consumption is. In order to make everything simple lets assume linear consumption function:
$$C= c_0 + c_1 (Y-T) \tag{2}$$
Where $c_0$ represents your autonomous consumption -  consumption you will consume regardless of your income, $c_1$ is your marginal propensity to consume, if $c_1=0.75$ that means you will consume $3/4$ of your disposable income and save the rest and finally $Y-T$ is income minus taxes which is the disposable income.
If we substitute $C$ back to the GDP definition and solve for $Y$, we get the goods market equilibrium:
$$Y = \frac{1}{1-c_1}\left( c_0+I+G-c_1T\right) \tag{3} $$
This shows that the level of economic output $Y$ will actually depend both on consumption and investment (and investment in turn depends on private savings as it is the sum of private and public saving). However, it also shows that if people's marginal propensity to consume increases (that is when $c_1$ becomes higher) the whole output multiplier $ \frac{1}{1-c_1}$ becomes higher and hence for any level of autonomous spending, investment or government spending the output will be higher.
Nonetheless the above is all just a short-run partial equilibrium analysis. Such analysis is appropriate when we are in recession and where investment is unresponsive because for example an economy is in a liquidity trap (a situation where increase in savings wont necessary fuel more investment). However, in long-run we have to acknowledge that investment is not just independent as the formula (3) suggests but also depends on income and interest rates as investment as mentioned above arises from private and public savings.
If we make just one very simple change to the model above and assume that investment is given as $I= I_0 + d_1 Y -d_2 i$ , where $I_0$ is autonomous investment, $d_1$ is the fraction of income that is invested, $d_2$ is parameter which determines how investment respond to interest rates and $i$ is an interest rate, then the goods market equilibrium will be given by:
$$  Y = \frac{1}{1-c_1-d_1}[c_0 + I_0 + G − c_1T] - \frac{d_2}{1-c_1-d_1}i \tag{4}$$
In this case you can see that the multiplier is given as $\frac{1}{1-c_1-d_1}$ so multiplier is given by spending not just on goods and services but also by investment spending - if people lower their marginal propensity to consume but increase marginal propensity to invest to offset that nothing will change. Furthermore, ceteris paribus increasing the amount of savings lowers the interest rate (which is the price for savings that can be used as investment).  So once we let investment to vary depending on interest rates and income we see that what matters is the amount of all spending no matter whether it is spending on goods and services or investing.
In addition the above is still missing explicit model for money-market and behavior of firms if I would add that in a result would show that in the long run all savings are transformed into investment either directly (which is modeled here) or indirectly through their effect on overall price level but an exposition of full model would be too complex so if you are interested you have a look at some undergraduate textbook (all models presented here are taken from the above mentioned Blanchard et all Macroeconomics but they will also appear in any standard macro book with perhaps different notation).
Furthermore, the discussion above does not factor in economic growth and saving and investment is crucial for economic growth. The main growth model used in modern economic literature are the Solow growth model in which increase in saving rate can result in short to medium term higher economic growth, but not really in  a long run per capita growth which will in the model be determined by the rate at which technology progresses. However,  for that to happen the economy still requires some level of saving - the model just shows that trying to increase the level of saving in the long run steady state wont make difference (See Romer Advanced Macroeconomics).
However, recently in literature endogenous growth models are becoming more popular (Romer even got his Nobel Prize in economics in  2018 for his work on them) and in such models savings rate actually can increase even long run economic growth (again see Romer Advanced Macroeconomics).

PS: This is little bit of an tangent and hence I included it as a post scriptum but actually this:

He cited the “simple fact of economics that high income earners are more likely to save or pay down debt with the tax cuts, rather than spend the extra funds to help stimulate the domestic economy”.

this is actually not entirely accurate - or at least taken out of context (probably journalist misunderstood statement about particular tax cut as a general one). You can always design a tax cut that specifically targets poor. For example suppose we have flat tax rate of $40\%$ we can always decide to cut tax rate to let's say $10\%$ only for people below some income threshold. Rather the issue is that taxes generally have lower multiplier attached to them and hence they affect output differently. From equation (3) you can see that if government spending $G$ increases by 1 the output will increase by $\frac{1}{1-c_1}$ but if the government decreases taxes output increases only by $\frac{c_1}{1-c_1}$ and on interval $0<c_1<1$ the former will be always larger as on that interval $\frac{1}{1-c_1}>\frac{c_1}{1-c_1}$. This also holds just in short-run though.

If people tomorrow decide to stop spending money on whatever consumer goods they think are the least important, and instead prioritize paying off their debts, creditors will more quickly replenish their reserves. This allows them to loan out funds for new projects/investments.
While this process takes place, the unbought consumer goods (the least important ones in the eyes of consumers) are not being sold at yesterday's high price. Businesses will either keep them in storage or lower the price. As a consequence of this, there is litte demand for the raw materials (including labour) that go into producing these goods. Therefore, the price of these inputs will also drop. At some point, the price becomes so low that entrepreneurs notice that the raw materials can be bought and used for new goods, that consumers want and can afford to buy.
It's important to be aware exactly what is meant when it is claimed that this or that policy is "good/bad for the economy". In the case you cite, the economist in question considers "a high number of dollars spent and many people doing stuff" to be signs of a "good economy". Therefore any policies that increases these numbers must improve the economy. If one uses a different criterion and asks if money is being spent on goods/jobs that consumers actually demand in their current situation (as opposed to hiring people to build "bridges to nowhere"), or if there are enough funds saved up to engage in new projects, those same policies can be seen as detrimental.


Proving or disproving hypothesis? I took statistics class years ago in my college and I don't remember much of it now. I am into public policy research now and I am bit confused about about what conclusion to make from available evidence.

Poverty is the 'root cause' of child labour is what is claimed by International Labour organization (ILO) and thus by lot of other countries. Evidence often cited for this is: most of the child labourers are from poor backgrounds in most of the countries where child labour is prevalent. So there is a correlation and for causality, if we think about it, no money => to earn money => all healthy individuals must work including children => child labourers.

Now I've read few research studies which claim that Poverty is not the root cause of child labour and the evidence they cite is,

There are poor countries where there is hardly any child labourers.
There are children studying in schools who are lot more impoverished than those who are working.
There doesn't exist a poverty line below which a parent is compelled to send their child to school.

So people on this end say, if poverty is the root cause then could we explain this. But this argument could be reversed too. Either way, I'm confused.

How should I go about interpreting and understanding this?

What data is required, and what analysis has to be carried out to settle the question, whether poverty is the cause or not? In other words, I want to set my hypothesis to be "Poverty is not the root cause of child labour", what should I do to either prove or disprove it?

I want to see this to the end. So feel free suggest some readings if you need to.

This is more of a logic question than it is a statistics question. I would say that the first point to address would be to define "root cause." Does that mean it is a sufficient condition? A necessary condition? Line of evidence #1 (there exist poor countries with few child labourers) precludes the possibility that child labour is a necessary condition of poverty as clearly poverty can exist without it. #2 reinforces that conclusion (again, poverty existing without child labour, just at a different scale).

Regarding point of evidence #3, I don't see how that is relevant: whether or not some policy exists compelling parents to act in a certain way doesn't affect the relationship between child labour and poverty.

As you allude to above, correlation is not causality. In this case, it seems from the correlation you can make equally strong arguments going both directions: child labour causing poverty; poverty causing child labour. You can make a logical case for it built on case studies, but making a statistical case for causality would require digging much further into the data.

Being poorer makes a person of any age work more (engage less in idleness or the pursuit of pleasure, and more in activities involving sacrifice in order to provide for necessities). This is just common sense.  It doesn't require statistics to understand this, does it?


A law against selling any house cheaper than it was bought for, what consequences would that have? I'm looking for a more general and principled answer and use Scandinavia today only as a sketchy example of the kind of scenario I'm asking about.

I live in Scandinavia where house prices has had an uninterrupted bubble boom during a quarter of a century now. Households are the most indebted in the world. Mostly of course in the form of housing loans. If the housing bubble would burst in Scandinavia as it has done in many other places the recent decade, certainly all banks will immediately be wiped out and millions of Scandinavians will become completely destitute for the rest of their lives with unpayable debts and no property to match it as a deep depression sets in.

Some key figures (for Sweden, not the oil country):

+7% housing prices on average per year since 23 years, with record increases the last couple of years.
0% growth in GDP per capita last 10 years (housing prices doubled anyway).
1.2% (positive) CPI-inflation since 10 years.
0.8% (positive) consumer housing loan now offered in ads without negotiation (after tax deduction) while central bank interest rates are stuck deep into
the negative.

Imagine that the government makes a law that forbids anyone to sell any housing at a lower price than what it was last bought for. Thus per definition the house bubble cannot burst, not legally anyway. And everyone is safe, the crash prevented and everyone will keep making millions simply by borrowing more for risk free "investing" in simply owning ones own house, right?

What would the negative consequences be and how would it play out?

That would be really, really bad.

Any house that loses value will be unsellable, and thus virtually worthless.

Most people living in such a house would be prevented from moving. They cannot sell it, since no one wants to buy an overpriced house, and they cannot afford buying another house with their capital already tied up in the current house.

A black market would appear, with people giving money back under the table. "Buy my house for 4M SEK and I'll refund 1M SEK under the table."

I can tell you one thing it won't do. It won't stop prices from ever falling.

One of the worst ideas I have ever heard. All negative consequences, almost no positive ones. ANY attempt by government to restrict prices (whether by floor or ceiling or anything else) ALWAYS has perverse bad effects; it always causes worse problems than the problem it is trying to solve. A free market works best when all members of the market are FREE to decide what price they are willing to pay, or receive, for a particular good. Government sticking its nose into that transaction always makes at least one participant in the transaction worse off, usually both, and the economy as a whole always suffers.

It's like a politician on campaign promising "I will reduce taxes, increase government spending, and reduce government debt!" That never works, EVER.


Why is it a problem if China starts "dumping" US Treasuries? What does it mean to be dumping? China has 1.2 trillion dollars worth of us treasuries. Why would it be a problem for them to get rid of all of them? Why would that destabilize the US economy?

It would increase the total supply of US treasuries available at any point in time, which would require a higher interest rate for the market to clear. Higher interest rates would increase the cost of capital in the US economy, which in most conditions will reduce investment.

However, higher supply would also decrease the exchange rate of the USD, which could be beneficial for exports (which needs to be considered in a context of higher cost of consumer imports and higher cost of production inputs).

"Dumping" would be fine as a descriptive word for many informal contexts, but "dumping" has specific meaning in an international legal context, such as in the WTO, and so regarding the specific question of what it would mean to unload large volumes of US treasuries at the same time, e.g. for the purpose of negatively impacting the US economy, "dumping" would not be the correct term.

It should also be mentioned that China would immediately lose significant financial assets if the 1.2 trillion in treasuries were to lose 100 billion or 200 billion dollars in equivalent value. Considering the relatively large volume of credit extended in the Chinese economy relative to financial assets, this implies a relatively major economic cost to China if it were to make such a move. On the matter of strategic reasons to hold large volumes of US treasuries, the face value argument of the Chinese government is legitimate, if not the complete story: What else should they be holding if not US treasuries?

The power of a currency comes from its usage and popularity. The dollar is strong and powerful currency because countries like China hold their state reserves in dollars. By following my statement previously that the power comes from popularity and usage, the problems and downfalls for a currency also come from its abandoning or as you would say - dumping. Abandoning currencies especially from big states that have great economic and influential power like China means distrust in the strength of that currency. In terms of money - distrust means failure of a currency and failure means - currency loses power therefore value. So to put it simply.

Before China dumps the dollar, the exchange rate between the dollar and the euro is (hypotetically) 1 dollar = 1 euro.

After China dumps the dollar, the exchange rate between the dollar and the euro is (hypotetically) 20 dollars = 1 euro.

When you need more units of a currency to buy 1 unit of another one, means that the first one is weak.

I hope this explains something.


Have Raj Chetty's Opportunity Atlas stats changed or been recalculated since early 2019? During a talk at Google, Raj Chetty said "Fruitvale, in Oakland ... here you see that for black men growing up in low income families in Fruitvale, the average income in adulthood is 5,600 dollars" (see https://youtu.be/X2YzxpWKKz4?t=844).

However, at https://www.opportunityatlas.org/, I appear to see 15,000 dollars for the same statistic (note the selections for parent income, child race and child gender at the top right of the screenshot):

Have the numbers changed?  Has the methodology been adjusted?  What explains the difference?

I noticed a similar discrepancy related to incarceration rates:

During the Google presentation, Raj Chetty says "43% of the black men who grew up in this particular neighborhood [Fruitvale] are incarcerated ... on the date of the 2010 census", but Opportunity Atlas (viewed in December 2019) gives 17% for the same incarceration rate statistic.

I dont think it had been recalculated becouse his plans for the American drean is still on sight,to me he has dispel the myth for of social mobility than anyone else
and that of fruitvale in Oakland the income is highly disappointing for the black people which as such other might think is kind of a racist thing forgive me but is something to look at


What are the defining features of Capitalism? What are the necessary and sufficient conditions for an economic system (or mode of production) to be classified as "Capitalism"?

Is it markets? Is it for-profit corporations? Is it limited liability companies? Is it workers selling their labour to capitalists/employees? Is it freedom to set up companies? Is it a low degree of government productive activity? Is it a subset of these or other elements?

I imagine the answer would depend on a particular schools of thought, so in principle I would expect different answers.

Disclaimer 1: this question is not requesting opinions about what capitalism is, it is not, it should be, it should be not, but authoritative answers, with proper references.

Disclaimer 2: for those voting to close this as too-broad, I asked on meta whether this question was on-topic, and (albeit not a popular post) it seems people agreed it was.

In this article, sociologist Erik Olin Wright provides a definition of
capitalism (from a socialist tradition):

  Many people equate capitalism with the idea of a market economy. Capitalism is not simply an economy in which markets play a central role in
  coordinating economic activity; it is a specific kind of  market  economy,  one  in  which  workers  do  not own and control the firms in which they work, capital  is  privately  owned  and  allocated  to  alternative purposes  on  the  basis  of  private  economic  returns  (or, equivalently, on the basis of private profit-making),  and  labor  is  allocated  to  economic  activities through labor markets.


What is the difference between a free trade agreement and a preferential trade agreement? What is the difference between a free trade agreement and a preferential trade agreement?

What is the difference between a free trade area and a free trade agreement?

A free trade agreement stipulates free (cero tariff) trade between countries/states. In practice, this also includes broader provisions, such as agreements on movement of capital, goods and people (such as NAFTA). A free trade agreement will also mostly include all or a large portion of goods.

In contrast, a preferential trade agreement is much less broad covering preferential (i.e. low or lower other countries) tariffs for a set of products or services. A preferential trade agreement can also just be unilateral or for a particular amount of years, etc.

A free trade area is an area inside a country or state where free-trade rules (in general, but depending on the country and circumstance) apply. These areas are intended mostly for the import and export of goods, and are useful for a country that imports a good as an input by which another good is produced, thus lowering tariff costs for the producers.

A free trade agreement is, of course, not a physical place (see explanation above).

Further, I recommend simply wikipedia in this case...

free trade is the unrestricted purchase and sale of goods and services between countries without the imposition of constraints such as tariffs, duties and quotas. Free trade is a win-win proposition because it enables nations to focus on their core competitive advantage(s), thereby maximizing economic output and fostering income growth for their citizens.
Formerly insular economies such as China and India have expanded at much faster growth rates since they adopted free trade principles in the 1980s and 1990s, respectively.

Free trade enables nations to concentrate their efforts on manufacturing products or providing services where they have a distinct comparative advantage, according to the theory first espoused by economist David Ricardo two centuries ago. A free trade policy should enable a nation to generate enough foreign currency to purchase the products or services that it does not produce indigenously. The process works best when there are few if any barriers to entry for such imports. The imposition of artificial constraints such as tariffs on imports or the provision of subsidies to exports will introduce distortions and impede free trade.

While....

trade agreement is any contractual arrangement between states concerning their trade relationships. Trade agreements may be bilateral or multilateral—that is, between two states or more than two states.

For most countries international trade is regulated by unilateral barriers of several types, including tariffs, non-tariff barriers, and outright prohibitions. Trade agreements are one way to reduce these barriers, thereby opening all parties to the benefits of increased trade.

In most modern economies the possible coalitions of interested groups are numerous, and the variety of possible unilateral barriers is great. Further, some trade barriers are created for other, non-economic reasons, such as national security or the desire to preserve or insulate local culture from foreign influences. Thus, it is not surprising that successful trade agreements are very complicated. Some common features of trade agreements are reciprocity, a most-favored-nation (MFN) clause, and national treatment of non tariff barriers.


How are recessions even possible if its impossible for banks to lose money? When a bank issues a loan, the money must end up with another bank. Therefore, the banking system as a whole can never lose money. Only the dumb banks which make loans that arent repaid can ever lose money.
Therefore, is a recession only possible if there is a divide between "smart" and "dumb" banks? Is it the case that, in any recession caused by bad loans, there must always be at least one smart bank somewhere that is profiting and solvent? Since the money has to go somewhere it seems there always has to be at least one bank that is least dumb and ends up with all of the money from others. In fact, the only reason m2 would fall at all is a composition effect whereby the dumb banks are more leveraged and fail.

Recessions are defined as fall in output (usually measured as a consecutive two quarters of negative GDP growth) not loss of money. Output (GDP) might very well fall even when firms are on average more profitable and people earn more money.
For example, in the 2020Q2 the median wage in US actually increased according to U.S. Bureau of Labor Statistics, yet US experiences unprecedented $32.9\%$ GDP decline as reported by Bureau of Economic Analysis.
How can that be? Well it is because the lowest paying people are more likely to get unemployed. In the same way, most of the time you will see the least profitable firms stop producing during recessions not the most profitable ones. Hence even when output of economy declines those who remain employed and economic active might actually earn more so the idea that recession is caused by firms or banks loosing/retaining money per se is simply fundamentally wrong. Its not the loss of money, but loss of output that matters.
Generally speaking recession occur when either aggregate demand or aggregate supply (or both) fall, which in turn leads to loss of output. This is because when aggregate demand falls this means people want to consume less goods and services and hence firms will also supply less of them, and when aggregate supply falls the production is affected directly (figure below shows some graphical examples).

Aggregate demand changes for example in response to changing incomes, wealth, inflation expectation or interest rates and aggregate supply in response to technology shocks, changes in firm costs etc. These are just an examples,  you can find more exhaustive discussion in macro textbooks for example Blanchard et al. Macroeconomics: an European Perspective is an excellent resource.
Most recessions do not even originate within the banking system. Rather banking system can be thought of  as an economic highway through which macroeconomic shocks propagate to the rest of the economy. For example, it is generally accepted that Great Recession was caused by collapse of housing bubble not with banks themselves. Rather the banks played role in propagation of the recession. Furthermore,  banks can also exacerbate recessions due to the role they play in money creation as fall of money supply can make recession worse while expansion of money supply can help alleviate them but exploring this is beyond scope of this answer as your question is about how recessions occur (these issues are discussed in most macroeconomic textbooks you can again have a look at the above mentioned Blanchard's textbook).

Good question!
I think the Austrian Theory of the Business Cycle (or perhaps more accurately, the "Credit Cycle") can help shed some light on how recession, banking and money can be connected.
Let's imagine a country with vast farmlands. A number of entrepreneurs open warehouses that offers 2 services. A farmer can deposit his excess grain for a small fee in case he wants it later. He gets a receipt stating how much grain he has deposited. This receipt can be traded for good and services. Other warehouses may collect it and demand that the specified amount of grain is transferred to them. Alternatively the farmer can authorize the warehouse to loan out, say, 1 ton of grain on the condition that the recipient will give 1.1 tons back at a later date.
"Fractional Reserve Banking"
Now let us imagine that one of the warehouses decides to pull a clever trick. If its customers have deposited 100 tons of grain, the warehouse could secretly take 50 tons and loan them out. The warehouse collects the storage fee and whatever interest they earn on the loan. As long as there aren't too many people showing up at the same time to withdraw grain, the trick will be a success.
The problem is that the "money supply" has now increased. The farmers have claims to 100 tons of grain, while the loan recipient has a claim to 50 tons (even though in reality, only 100 tons are available - not 150!). The farmers and the recipient will start projects under the faulty assumption that 150 tons of grain are available to pay construction crews, architects etc. These projects will be to numerous or too elaborate to be completed since there simply aren't enough real resources to go around.
At some point, individuals or other warehouses, that have obtained the duplicated receipts will start to demand the real grain from the first warehouse. Since they can't all be paid, work will seize and the half-finished projects will plummet in value. Whatever businesses were started to contribute to these projects must close and sold to the highest bidder. A recession has occurred!
To answer your question, you are correct that recession should not occur in a world with a fixed money supply. However, the process described above where deposits are turned into loans is perfectly legal and an integrated part of the modern banking world. Part of the reason is the belief that expanding the money supply stimulates growth (jobs are certainly created, but whether they are actually productive/sustainable can be debated). If one adds the ability of central banks to physically or electronically issue more fiat money, it is easy to see why the idealized , but understandable assumption underlying your question is not actually valid.
I can recommend the following link for a more detailed treatment:
https://mises.org/library/case-against-fed-0/html


Why does anyone prepare their own food? I'm not an econ person, so this is a super naive question, but here goes: why, given the comparative advantage that specialization produces, does anyone prepare their own food rather than buying from restaurants all the time? It seems like there should be economies of scale with respect to food production (restaurants prepare food far more efficiently than I can do at home). Where I live, it's often cheaper to prepare your own food than ordering take out, but I can't understand why.

The weights used in the U.S. CPI (from 2016) are available here: link to BLS weights. Note that these weights are based on consumption data, so that they are meant to align with actual spending patterns.
If you look at them, you will see that the majority of the weight is either processed food or food away from home. Note that some categories explicitly state “processed,” but even things like salad dressing are put together in a factory.
Factories have a comparative advantage for processing food, but not for delivering hot food. Meanwhile, food is normally shipped in a form that can be stored. A box of pasta can be held in a store a lot longer than pasta that has been boiled and put into a container. Households do the final heating steps. As such, the premise of the question is somewhat flawed - processing is being done largely in an “efficient” fashion (although there are debates about food quality).
Restaurants are required to pay workers and rent and expect to make a profit, whereas food prepared (or just heated up) requires no payment. Cooking is labour intensive, and so it is hard to compete against \$0/hour if we look at the cost of the meal. Individuals might value their time at more than \$0/hour, but how they value their time does not matter if they cannot get more paid work and face a strict monetary budget constraint. Meanwhile, travelling to get a meal takes time. Finally, being reliant on food away from home poses risks, as seen in the pandemic.

There's little evidence that ordinary eat-in restaurants are more efficient at preparing and serving food than home-cooks.
It is more credible to think that factories are more efficient at processing food than home-cooks, which is why there is nowadays actually an abundance of food in frozen or otherwise prepared forms (including that which is supplied to restaurants).
In terms of hot food, the main inefficiency of doing this centrally would be the travel time (and travel cost) incurred at every meal, and the need for physical infrastructure that is capable of rapid distribution of hot food to a large and hungry multitude. Cooked food usually starts to deteriorate in perceived quality within minutes of cooking being concluded.
Meanwhile, once the preparation of food is done, there is very little to be gained in terms of efficiency whether it is cooked centrally or cooked at home. So in general, the distribution of uncooked food is far more efficient, since it reduces the urgency of distribution (with large spikes in demand at conventional mealtimes), and usually a number of uncooked meals can be retrieved in one transaction with the distributor, and then cooked at leisure.
Generally speaking, the amount of labour required for home cooking can already be reduced to a matter of minutes of active labour, and a few tens of minutes of passive waiting, and it's very difficult to make further economies on this stage of the process.


How can the stock market keep growing indefinitely? It sounds like a dumb question, but there is only so much money in the world. Assets can grow, but money can only be printed. So if there is 400 trillion dollars worth of money in the world, and the stock market beats inflation by about 7% each year, eventually it will be projected to grow to be more than 400 trillion dollars, which should be impossible.

As mentioned in the other answer, the amount of money does not have to correspond to the total value of all assets in the economy. However, there is some correspondence that is not mentioned in the other answer so I will focus on that.
First, there should always be enough money in the economy so people can carry all the transactions they want. If that is not true the money market would not be in equilibrium. This can be formalized using the equation of exchange (see Mankiw, Macroeconomics 7th ed pp 86):
$$MV=P_TT$$
where $M$ is the stock of money, $V$ is the velocity of money (how many times is on average one bill used), $P_T$ are the prices and $T$ is the amount of transactions (which for the purposes of this answer can include asset transactions as well although normally this sort of model would be used only for goods and services).
We can learn several things from this formalization.
First, as the previous answer pointed out amount of money $M$ does not need to be equal to the value of assets, since the equation is $MV=P_TT$ not $M=P_AA$ (where $A$ would be assets). So the velocity of money matters as well. If you buy from me 1 stock of Apple for ${\\\$}100$ I can use the same ${\\\$}100$ dollar bill to buy other assets - so even though there is only single ${\\\$}100$ dollar bill multiple things can be purchased with it if it circulates fast enough. Moreover, because not all assets $(A)$ are always transacted $(T)$ there does not need to be correspondence between value of all assets and money as well.
Second the formula $MV=P_TT$ can be rearranged by decomposing the prices into aggregate price level $P$ and relative prices $P_r$ of the 'things' that are being sold on the market where the following equality would hold $P_TT=P P_r Q$  where $P_r Q$ would be the real value (i.e. inflation adjusted value) of $Q$'s  that are being sold (which we could also be in principle some asset). Lets also denote the real value of things being sold as $T_r$. So now the model would look like:
$$MV = PT_r$$
The equation above also shows us another thing. Even when $M$ and $V$ are fixed the real value of transactions $T_r$ can grow because prices adjust.
Ultimately what matters are real returns not nominal returns. When someone says that stock market returns beat inflation by $7\%$ that means that they real value increased by $7\%$ not that their nominal value is by $7%$ higher. For example, imagine that economy is experiencing deflation (negative inflation of $10\%$ and stock increases in value in real terms by $7\%$ per year. In such such situation if you invest ${\\\$}100$ dollars for one year in nominal terms at the end of next year your stock will be worth only ${\\\$}97$. However, real value of your asset (correcting for inflation or in this case deflation) is ${\\\$}107$ because deflation means everything in economy is getting cheaper and so you can purchase much more with ${\\\$}97$ than with ${\\\$}100$ year before.
The real value of asset  such as stock depends, very broadly speaking, on peoples' valuation of the underlaying companies. Constant improvement in technology and productivity on average leads to companies being more valuable on average over long time periods (of course, technological progress destroys some companies but it also allows other to flourish or completely new industries to rise up and we are talking about whole market here). Consequently, in real terms the only limit for how much stock market can grow are technological & resource constraints avaiable to humanity (with emphasis on the technology).
In addition, it is worth noting there is no limit on how many money there can be in the world. Nowadays most of money is not even printed it is just created at a keystroke virtually. In principle if central banks would be willing to they could always find a way to expand money supply to any size they desire, so in theory $M$ can be any non-negative real number you can think of.
Hence in conclusion, the premise in your question ignores the velocity of money and the fact that not all assets are always transacted so there does not need to be enough money to purchase them all. And secondly even if velocity of money and and money supply is fixed the prices can still adjust in a way that allows for the market to grow in real terms.

Social customs in commerce and government impose an upward bias so investors tend to average up the last sale price of equity shares on secondary markets over time. This social process might come to an end via natural disaster or social disruption where compound increase in equity prices could be a feedback to the crash of market prices such as via overshoot and collapse pattern.
Technically cash positions in brokerage accounts are invested in the money market mutual fund (MMMF) industry. Assuming both buyer and seller hold cash positions in MMMF shares then whenever shares of stock trade on the secondary market these transactions do not change levels of MMMF shares or shares of stock. The buyer and seller swap title to MMMF shares and shares of stock.
In aggregate the "risk off" trade means many investors prefer to own MMMF shares and try to sell shares of stock. This does not increase MMMF levels. Instead prices for shares of stock will average down rapidly at the last sale and the MMMF industry has no opportunity to increase levels of funds via this mechanism. If investors prefer short term Treasuries and insured bank deposits to MMMF shares that threaten to "break the buck" then even levels of MMMF shares will be reduced by the "risk off" sentiment.
In aggregate the "risk on" trade means many investors prefer to own shares of stock and try to minimize holding of MMMF shares. This does not decrease MMMF levels. Instead prices for shares of stock will average up at the last sale and the MMMF industry has no opportunity or desire to decrease levels of funds via this mechanism.
During the so-called Global Financial Crisis in late 2008 the effort to take risk off in financial markets could not be satisfied by balance sheet adjustments of banks or other financial intermediaries because levels of money and MMMF funds are a consequence of deals made on the financial intermediary balance sheets. Market forces were causing many banks and other financial intermediaries to sell assets and reduce (unwind) their balance sheets. The U.S. Treasury and Federal Reserve System expanded their balance sheets to provide some liquidity for the "risk off" demands in the global financial markets.


Do all prices just reflect absence of information? In information economics, information has economic value because it allows an agent to make better decisions. For example if an agent needs to buy some good, he will benefit from knowing about the existence of all possible sellers since he will be able to buy at the lowest price.

I was wondering if there is work in economics that takes this view to the extreme and considers that the price of a good/service entirely reflects the absence of information about this good/service (to simplify it would be the sum of “not knowing how to efficiently manufacture this” + “not knowing where to get the raw material”)

It's a deeper discussion, but you could argue that profits reflect information disparities between agents.  However, in the most idealized circumstance, prices themselves arise from scarcity resulting from physical constraints of the system, not informational constraints.

When barriers to entry are low that is the case. If I have a 3d printer and materials then anything I make is just information based.

As markets become more efficient and barriers fall this gets more obvious.


Papers on Game Theory and the Housing Market Professor George Fallis in his book "Housing Economics" writes:
(Chapter 4 pg. 78)

The (home)owners will establish a pricing strategy depending on how they believe demanders are behaving; and the search strategy of demanders will depend upon the pricing behaviour of the (home)owners. The elegant separation of the demand side and the supply side is no longer possible. The modelling of such a market will be extremely complex, and the idea of equilibrium will have to be rethought.

This being said there is one thing that comes to mind when wanting to model house pricing based on this reality: Game Theory.
My Question:
Is there any (famous or otherwise) papers which discuss the nature of Game Theory in the housing market?
(Papers with computer simulations of the housing market are additionally helpful!)

-Game Theory and Real Options:
Analysis of Land Value and Strategic Decisions
in Real Estate Development- Chun Kit So ( Timothy So )

https://dspace.mit.edu/bitstream/handle/1721.1/84171/867636352-MIT.pdf?sequence=2

-Course blog for INFO 2040/CS 2850/Econ 2040/SOC 2090

Using Game Theory to Understand the Housing Crisis of 2008

https://blogs.cornell.edu/info2040/2017/09/11/using-game-theory-to-understand-the-housing-crisis-of-2008/

-Why housing price in Hong Kong is so high? An explanation in game theory
Ho-Yin Yue1* • King-Tai Leung 2 • Lee-Kei Fung - Economics and Business Letters


Arrow’s Impossibility & Validity of Social Welfare and Pareto Improvement Analysis Arrow’s Impossibility states it is impossible to formulate a social ordering (Social Welfare Function) without violating some desirable conditions ( one of the “No dictatorship”, “ Pareto Efficiency”,  “Independence of Irrelevant Alternatives”, “Unrestricted Domain” and “Social Ordering”). However, there are many (prestigious) academic papers assuming some (utilitarian) Social Welfare Function,the most popular Welfare Function in related literature, to draw some conclusions, For example “Redistribution through Markets” and "Monetary Policy with Heterogeneous Agents:
Insights from TANK models".
I'm wondering, having Arrow impossibility in mind (There is no valid Social Welfare Function), how one can wholeheartedly believe social welfare improvement claims? and why famous economists and Journal referees think that such analysis are justifiable?
Would you mind helping me? Maybe I did not get implications of Arrow impossibility Theorem.

Let $X$ be the nonempty set of alternatives, $\mathcal{P}_X$ the set of preference relations on $X$ and $N=\{1,\ldots,n\}$ a finite set of agents. Under the universal domain condition, Arrow's theorem concerns functions from the set $\mathcal{P}_X^N=\underbrace{\mathcal{P}_X\times \mathcal{P}_X\cdots\times\mathcal{P}_X}_{n\text{ times}}$ to $\mathcal{P}_X$. Utilitarianism does not just depend on preferences alone, and can therefore not be formulated in this setting.
Still, one can formulate Arrow's theorem in terms of utility functions. So let $\mathcal{U}_X$ be the space of real-valued functions on $X$, interpreted as "utility functions." I'll explain the scare-quotes later. We are now looking at functions from $\mathcal{U}_X^N$ to $\mathcal{P}_X$. Since utility functions determine preferences, we can do now the same things we could do before and more.
Now there are two ways to formulate Arrow's condition of independence of irrelevant alternatives in the new setting; adapting the other conditions is straightforward.
The first form is:
IIA1: The function $\phi:\mathcal{U}_X^N\to\mathcal{P}_X$ satisfies IIA1 if for any two profiles of utility functions $u=(u_1,\ldots,u_n)$ and $u'=(u_1',\ldots,u_n')$, and any two alternatives $x,y\in X$,  such that $u_i(x)\geq u_i(y)$ if and only if $u_i'(x)\geq u_i'(y)$ for all $i\in N$, we have $x\phi(u) y$ if and only if $x\phi(u') y$.
Note that IIA1 has implicitly two components. The first says that the social ranking of two alternatives depends only on the utility values for these two alternatives. The second says that only the preference ranking matters, but not the "intensity." If we only keep the first, we get
IIA2: The function $\phi:\mathcal{U}_X^N\to\mathcal{P}_X$ satisfies IIA2 if for any two profiles of utility functions $u=(u_1,\ldots,u_n)$ and $u'=(u_1',\ldots,u_n')$, and any two alternatives $x,y\in X$,  such that $u_i(x)-u_i(y)=u_i'(x)-u_i'(y)$ for all $i\in N$, we have $x\phi(u) y$ if and only if $x\phi(u') y$.
IIA2 is actually weaker than requiring that the utility for both alternatives are the same in both profiles; only the differences need to be the same.
Now, with the other axioms suitably reformulated, IIA1 implies that all such functions $\phi:\mathcal{U}_X^N\to\mathcal{P}_X$ must be dictatorial, while IIA2 is compatible with utilitarianism.
Now, so far this was a purely mathematical issue. In particular, we treated utility functions as being somehow objective things and not just representations of preferences. They also measure well-being in a way that is comparable across agents. So utilitarianism uses information that is not included in purely positive models of economic behavior, in which only preferences matter. Now, one can discuss how sensible it is to compare the well-being of different agents and what information one needs for certain SWFs. There has been a research program starting in the late 1970s of discussing the exact informational assumptions one uses for such comparisons of well-being. A nice introduction to the topic is given in the 1998 book "Theories of distributive justice" by John E. Roemer. Roemer directly relates all this to Arrow's theorem, so his book will give you a very extensive answer.

Arrow impossibility theorem presupposes:

that individual preferences can be expressed ordinally, but not cardinally, and

that "Pareto", "relevance" (i.e. “ Pareto Efficiency” and “Independence of Irrelevant Alternatives”) and "no dictatorship" are necessary conditions for democratic elections.

The first point stems from the difficulties that the founders of decision theory had with comparing the cardinally expressed preferences of different people (how do you compare my 5 points with your 4 points?). Arrow, therefore, rejected the cardinal expression of preferences "because it makes no sense". Truly curious, given that von Neumann had shown years before how the cardinal preferences of different individuals could be compared (in Theory of Games and Economic Behavior of 1944). In addition, it is almost trivial to find options for which cardinal preferences make more sense than ordinal ones. Consider the following options:
A. You will receive 100 dollars.
B. You will receive 100 dollars and will be beaten to death.
C. You will be beaten to death.
Which better expresses your preferences, ordinal A > B > C or cardinal
A = 10000000000000000000000000000000000000000000 points,
B = 1 point
C = 0 points?
Thus, electoral systems with cardinal expressions of preferences should not be rejected. But if we take them into account then Arrow's theorem is no longer relevant.
Consider an electoral system in which voters are free to assign a certain number of points to each option (e.g. 0 to 9 points) and which finally ranks the options according to the number of points obtained. It is "Pareto", "relevant" and "non-dictatorial". Arrow's theorem does not apply to this system (because Arrow's theorem a priory excluded such systems).
The second point is also questionable. Although "Pareto" and "non-dictatorship" may be thought as unquestionable democratic principles, "relevance" can not. Consider the example, by which Condorcet in the 1780s questioned Borda’s electoral systems. This is an example with the following distribution of votes:
30     A > B > C
1     A > C > B
10     C > A > B
1     C > B > A
10     B > C > A
29     B > A > C
Thus, 30 voters prefer the order A > B > C, 1 voter prefers A> C> B, and so on. Borda’s electoral system which gives 2 points for 1st position, 1 point for 2nd position and 0 points for 3rd position, gives the final order B > A > C. (It can be proved that any decreasing distribution of points from the first to the third position gives the same result.)
Condorcet’s objection is that in a direct duel A wins B (because 41 voters put A ahead of B and 40 voters put B ahead of A) and A wins C (because 60 voters put A ahead of C and 12 voters put C ahead of A). So, A is Condorcet's winner which in direct duels wins all other options, and Borda's system does not declare him the winner. Condorcet concludes that Borda’s system is invalid.
Notice that this is precisely an argument from "relevance". Condorcet’s winner (in his example it is A) is determined by the mutual duels of two options, regardless of how the other options are ranked. This is exactly what "relevance" requires. In other words, Condorcet's objection is that Borda's system does not respect Arrow's (almost two centuries younger) requirement of "relevance."
The question is whether Condorcet is right, i.e. whether "relevance" is relevant. Consider a simple majority choice between two options A and B. Suppose there are 2,100 voters in play. If we detect among them 1000 who prefer A > B and 1000 who prefer B > A, we can ignore those 2000 votes (because they cancel each other). The result of the election is determined by the remaining 100. Analogously, 30 voters in Condorcet’s example:
10     A > B > C
10     B > C > A
10     C > A > B
cancel each other out, so we can ignore them. Namely, each of the options has the same number (in this case 10) of first, second and third places. With the same argument we can ignore 3 voters with preferences:
1     A > C > B
1     C > B > A
1     B > A > C
But when in Condorcet’s example, we ignore those voters whose votes are annulled, the decision is made by the remaining voters:
20     A > B > C
28     B > A > C
And the winner is B.
Condorcet is wrong, as is the Arrow’s “Independence of Irrelevant Alternatives”.


Why do some businesses choose scarcity as their business model instead of raising the price to meet the demand? Here are some examples of what I'm talking about:

Mass events such as Burning Man, the Olympics, and the World Cup sell out tickets very quickly which forces fans to resort to scalping or using bots if they want to secure a spot
Concerts of popular artists sell out very quickly which creates a massive scalping market
Limited editions of clothing suffer from automated bots buying up and reselling almost all of their stock in a matter of seconds
Popular restaurants sometimes require making a reservation several days in advance or don't take reservations and have everyone wait in line for a long time
Daycares in Canada and the US frequently have waiting lists of several years which forces parents to sign up for one as soon as they conceive

I'm sure there are more examples of such practices that I'm not aware of. All of them could have addressed the difficulty of obtaining the product through some form of dynamic pricing - as demand goes up you increase the price, as demand goes down you decrease it. Various forms of auctions could also be used to determine the price, if required. This is how the world of airlines operates these days - planes are almost never sold out, but you might find that a ticket costs 10x the original price if you buy one right before departure.

What's the name for such business policies in economic theory?
Why would a business choose to follow such practices?
Can this strategy actually result in higher profits over the long term or are businesses losing money by not using dynamic pricing?

Your question is somewhat ill-posed as stated, because none of your examples are good instances of businesses creating artificial scarcity.  Each of them are businesses that face real capacity constraints, whether it be building space and fire-code restrictions or an attempt to manage a sort of tragedy-of-the-commons demeaning of the service.

But you are right in wondering why these businesses don't run their prices up until demand meets capacity. It's basically down to a choice by the business whether to ration through pricing, or ration through queueing.

Queueing is viewed, rightly or wrongly, as a more "fair" means of rationing, since (in the case of non-essential goods) everyone has the same endowment of hours in the day. To the extent that this is true, it's a means to distribute the good or service equitably in a cross-class sense.

It is also a more robust business model in terms of revenue stability, as it leaves much of the "clearing house" work in the respective markets to consumers themselves.  One alternative would be to continually monitor the market and adjust prices to keep patronage at or near existing capacity, which is a tricky balancing act that entails potentially high information and menu costs.

Another, obviously, would be to expand the enterprise - but economies of scale must be present.  Even then there are associated costs and risks - expansion can serve to dilute a brand, and very few restaurant franchises receive Michelin stars.  The market for event space is extremely fraught politically, and the subject of a lot of recent academic interest.

Scalping is an example of arbitrage that takes advantage of the inherent inefficiency of queueing.  One can argue that tickets sold in advance of an event must be priced below their value, with the difference being a combination of a risk premium the venue-owner pays to be assured of a full house well in advance and a risk discount that event-goers demand because of the non-zero possibility of their attendance being disrupted at the last minute.  Flesh-and-blood scalpers make money off of the rapid market shifts that arise due to the resolving of this uncertainty for both parties, and it could be argued that this leads to a more efficient market.

Of course, software breaks this model entirely, and so I wouldn't make that argument today.  But it's certainly true that whatever value scalpers have captured historically was money that even large monopolies like Ticketmaster were not especially inclined to capture for themselves, suggesting that the costs of doing so exceeded the expected benefits.

Well, this is a hot topic where I live. Basically most of Central and Northern Europe is suffering from an overheated economy in certain sectors. So, if you want to get a house built or some construction repaired, or have some maintenance done on a gas boiler, you are looking at waiting a long time to get someone in, and you are looking at low quality work in general. I won't mention the equivalent problems in health services because that's more a state-vs-corporate pay struggle.

The problem as I see it is that right now personal TIME is way more important than SAVINGS. People simply prefer to earn less and have more quality life, because their sense of SECURITY in potential earnings precludes the need for SAVINGS. In short, people are lazy and prefer to earn enough and work less, rather than work more and earn in excess.


Why Is the West providing technology to India? Previously, we have seen that Europeans and Americans provided various technologies (high-speed rail[1], aerospace[2][3], microprocessor[4], etc.) to China to earn instantaneous money. Later what happened was, China did its own research on those techs, improved them and became a giant vendor.

Apparently, the same is being repeated in case of India. The USA and EU is giving India missile tech[5], nuclear tech[6], aircraft carrier tech[7], fighter jet tech[8], and so on. India is also making 100% sure that they obtain those techs by enforcing a so-called policy named: "Make in India"[9].

My question is, Why Is the West providing technology to India even though there is an imminent danger to the West of India becoming a 2nd giant vendor?

References

https://en.wikipedia.org/wiki/High-speed_rail_in_China#Acquisition_of_foreign_technology
https://www.ainonline.com/aviation-news/defense/2017-06-20/new-chinese-fighters-tap-russian-us-technology
https://www.cnbc.com/2017/09/18/rolls-royce-chairman-ian-davis-on-chinese-jet-engines-singapore-summit.html
https://en.wikipedia.org/wiki/Loongson#MIPS_patent_issues
http://uk.reuters.com/article/uk-l-t-mbda-idUKKBN15S0XG
http://www.firstpost.com/india/india-us-nuclear-deal-all-you-need-to-know-about-the-landmark-agreement-3596209.html
http://www.news18.com/news/world/us-to-provide-emals-technology-to-india-for-aircraft-carriers-1550359.html
https://economictimes.indiatimes.com/news/defence/us-updates-jet-engine-technology-transfer-policy-with-india/articleshow/50131574.cms
https://en.wikipedia.org/wiki/Make_in_India

I may hazard a small guess to this. India has a very young workforce in comparison to its Asian counterparts (China and Japan). We especially see this in the field of software design where it has an even lower median age of labour than USA. As we know the West gains a lot from brain drain and stands to gain even more from young innovative minds that India produces, we can assume this access to new technology will let India produce even more bright minds.

As for India becoming a large vendor. We can see China will be facing extreme labour shortages soon due to it's high aged labour force and extreme brain drain. This in turn has China to be predicted to fall as a large vendor in the global market (Or at least possible). If it does India can take its place, easing the instability of the market, and if it doesn't we have a new youth force with amazing work ethic gain from.

Also from an Economic view more vendors in the market is decentralizing, which can be seen as good or bad depending.

Hope this had something to gain.

1) "The West" is comprised of quite a number of different countries. Among other things, almost none of them have the words "United" or "States" in their names.

2) Free trade logic is, by definition, not the main guiding logic when a sector is defined as a strategic sector.

3) Perhaps Western firms should be banned from exporting to any non-Western country? Would that be good for Western countries?

4) When "Made in India" becomes a quality stamp for anything other than curry, maybe more people will worry more about India becoming a 2nd (or 7th/8th at best, as it were) vendor.