The Most Confusing Equation in Economics

[@leonidnosov7872]

The last point is smililar to the misunderstanding of Ohm's law: R=U/I - Resistence is voltage divided by current And, based on the formula, one might think to increase the resistence we must increase voltage, yet R is not defined by Ohm's law, it can only be found by it.

[@lookedpuppet4270]

I'm a freshman in college studying economics thank you for the videos they really help me out!!

[@jakkeddaw]

This has become required watching for all friends and family members. I'm sending it to everyone.

[@vedantmungre1702]

So I suppose I found the next to be popular channel in the coming years. Thanks KZbin algorithm! And All the best to creator behind this. I never got the gust of this concept although I had an A+ in economics. Thanks to you, it now makes sense

[@manbot.editzz1557]

This is such an underrated channel. Love these videos as an economics student❤

[@Keyaneth2]

I'm so glad I took your class. I had to withdraw because my math skills are just too rusty. Haven't used them in about 20 years. I'll be back after I brush off the rust, so to speak. But I want to scream from the hilltops that everyone needs to learn what is taught in ECON 1500. I was just talking to my wife that I wish an ECON 0900 was taught and made a requirement for college students. A class that just teaches the simple concepts of economics. Knowing about supply and demand curves would improve people's lives. And, of course, knowing how GDP is calculated.

[@MarketPowerYT]

We've missed you!

[@Keyaneth2]

@@MarketPowerYT That's nice to hear. However, my doubt is high, considering the class size. I was very bummed out when I had to withdraw. Your class was my favorite to attend this semester.

[@aodhanbreathnach386]

Misunderstanding maths is what economics majors do best

[@Far_HanAquarius]

FM + Econ😁

[@jamesgreen4212]

I literally have an Intro to Econ final in 6 days. TALK ABOUT TIMING! Love from across the pacific here in Singapore ❤

[@aron4317]

Can you explain the rectangles that were used at 10:35 (I get the whole crowding our argument) but I want to understand how you got the government expenditure area and the investment area? Are they general so it doesn't matter or how did you end up there ? Thank you

[@MarketPowerYT]

This was the one part of the video I was worried wasn't explained well. Each rectangle is the Q* (equilibrium quantity) under each demand curve. The curve shifts by the amount of government spending. So one way to look at it is to look at the new equilibrium and follow the interest rate back to the original demand curve. That tells you how much private investment there is, which is necessarily lower than the private investment without the government's borrowing.

[@suryagel5931]

Mathematicians use : before the equal sign to signal a definition that would solve the problem

[@jatinthukral2443]

KZbin has finally understood what kind of videos I like. Hadn't subscribed to a channel in a while. Just found one.

[@rafaelflores448]

What happens to gdp when the government creates currency instead of borrowing? Lets say for example that the government prints billions of dollars to pay for a war, it probably wont cause the monetary crowding out of private investment or consumption, but it will cause the crowding out of real resources, even if the economy has "slack", excess capacity and/or idle resources. In ww2 the gdp of the us grew massively, but it was mostly government spending on weapons of war while private consumption fell, the metal that was used to build tanks and ships could have been used to make other things, factories that produced bullets couldnt be effortlessly shifted into producing consumer goods, workers had to leave the factories to fight the war and less productive women and elderly had to take their place, there was not enough food for everybody so they enacted rations, etc. This grew gdp but didnt make the standards of living better, you could make the argument that if the us had not gone into ww2 we would be in a much worse place but that is not something you can measure. The central bank can also try to "stimulate" the economy by artificially lowering interest rates, it will cause both investment and consumption to go up quickly, since creditors will be less eager to save and debtors will be more eager to borrow than they would otherwise be, this may cause price inflation and affect the real gdp but price inflation can take a lot of time to occur, in the short run you will have an illusion of growth of the real gdp (boom) while in the long run the prices will start to ajust, the fed is gonna have to increase rates in order to contain the price inflation which may lead to a recession if the economy is overleveraged(bust). If you are only looking at the nominal or real gdp you might reach the false conclusion that we only need to spend more currency to get the economy spinning again but that will just cause another cycle

[@TSSPDarkStar]

Wow that was a fantastic video. The animation was fantastic, the content ws interesting and at a great level for those who are interested but not experts in economics, and i really felt like i learned a lot. You earned a super easy sub right off the bat, usually i watch mutiple videos of peopple before I do that but I cant help myself here.

[@lorenzofalorni3961]

That's the aggregate demand formula.

[@dcadesivertsen4774]

Hi Dr. Palsson, I've watched your videos for awhile now and always enjoy them. I'm currently a master's econ student at Purdue (previously got an MSBA from Southern Utah University) and I'm just getting back into economic research. Would you consider making more videos about your own research, the writing process, choosing and submitting to journals, etc? I'm not considering a phd right now but I'm working on 4 or 5 research projects that I hope to bring to the publishing finish line. Thank you!

[@faizasultana2476]

Love ur videos!!

[@aqilkimy-nj4jz]

Such a nice video, not too complicated examples and hopefully give a good idea of what economics is to others

[@AirSmellerThe3rd]

Yo this is some good content will subscribe and leave a comment

[@moroccanamvs547]

Great video ! Thank you

[@Pedritox0953]

Great video! Peace

[@Icy565u4]

Hey Craig, I’m in my second year of a Bachelor’s in Computer Applications but want to switch to a Master’s in Political Economy. The problem is I’ve got zero background in it. Any advice on how to build my profile to get into good universities? Also, is there a way to connect with you directly for more guidance? Love the content on Market Power-thanks for making econ so interesting!

[@yoan3576]

Great video, but you gotta fix the food that you are eating. Those cans are problems waiting to happen

[@Pier_Py]

Very cool explanation

[@omartaha8629]

great video, very helpful, thanks

[@sirprozzychannel9157]

Thank you sir

[@samlevey3263]

The point that GDP is more complicated than just adding those components is fine, but using a model that assumes full employment in order to say that government spending cannot increase GDP is, in my opinion, pretty extreme policy misdirection. More often than not, when people want the government to spend more in order to increase GDP, the reason they want this to happen is *because* we are *not* at full employment.

[@MarketPowerYT]

The effect of the fiscal stimulus is a tug-of-war between crowd out and multiplier effects. There are plenty of (credible) studies that show a dollar of government spending, even in recessions, is less than a dollar of increase in GDP. Even the studies on the New Deal, a point where America was as far from full employment as we have ever been, show that government spending had crowd out effects. Of course, there are good studies that also show that a dollar of government spending can create more than a dollar of GDP. It's an active debate, and I might address it more in a future video.

[@samlevey3263]

@@MarketPowerYT I'm aware that there are many studies with a pretty wide dispersion, but to the best of my knowledge many economists use a value of around 1.5 as a rough rule of thumb for the size of the multiplier, assuming we are not at full employment. While I would not try to say that all government spending across all times has the same multiplier, or even necessarily a multiplier greater than 1, I don't know how you can tell a **financial** crowding out story (meaning, the crowding out happens through interest rates) **unless** you assume full employment. Of course you could tell some other crowding out type story (perhaps public activity directly replacing private activity because of overly low pricing of products), but I don't think the theoretical mechanism for the interest rate story makes sense without full employment. That's because it generally depends on income not being the thing that adjusts to changes in investment or saving (and, more specifically, in newer version it assumes that the Fed is going to respond to fiscal deficits by raising rates, which they would not have a reason to do if the economy weren't at full employment).

[@rafaelflores448]

@@MarketPowerYT i think that you are missing the point, the point is not whether or not government spending causes gdp to go up, from my knowledge when the government creates currency that always causes gdp to be higher in the short term then it would otherwise be, the point is whether or not it is beneficial for the economy, if the government creates a billion dollars( in this case it woulnt be crowding out private investement or consuption since its not being borrowed from the private sector) through the central bank to pay people to dig holes in the ground and then fiil them up again with shovels, this will probably cause real gdp to go up, but it wont cause more production or the standards of living of the population to improve, the firms that are in charge of digging these holes will have to buy shovels to dig the holes, shovels that could be have been used to do other things, the price of shovels will start to slowly increase and other firms who also use shovels will have to pay a higher price for the shovels, the workers will spend their income to buy consumer goods which will also cause the prices of them to increases in the long term. government spending always causes crowding out effects it doesnt matter where the money comes from because the government itself doesnt produce anything, it simply causes a reallocation of the resources that already exist in the economy, the people who are closer to the spending and currency creation of the government are able to benefit while the people who are farther away from it will lose (this is known as the "cantillon effect"). this happens even if the economy is not at full employment, if it has excess capacity and/or idle resources because of the fact that scarcity exists, economics in not alchemy, although values are subjective and they can increase by the simple action of trading, resources are scarce and you cant create more of them by just creating more currency.

[@aseth9541]

Did you use manim for animations?

[@MarketPowerYT]

Yes

[@paxdriver]

Volume compressor please and thank you

[@xenvector]

great video, but I'm starting to hate the fact that I am a financial engineer and most things people don't understand or find confusing have become intuitive and easy to me

[@MarketPowerYT]

Economics is like that cheat code that lets you see inside the Matrix.

[@bobsoup2319]

Trump 100% thinks imports takes away from GDP 😭

[@hetanshthakore5886]

Hey! At 11:52 you said that all the money in savings from which government borrows is coming from decreased consumption by public but does the government actually borrow from private individuals thereby squeezing their consumption out? Isn't government borrowings actually coming largely from new money created by Federal Reserve instead of savings of individuals? Hence isn't government spending boosting gdp while keeping money in pockets of individuals to spend as they like? (I understand inflation is like the side effect of whole government deficit stuff but how is consumption decreased by government deficit)

[@MarketPowerYT]

Great question! In the short run, you can finance spending by printing money and get slightly higher GDP growth. But, like you said, in the long run you would get inflation and the growth rate would fall back. So government spending, in these models, has no effect on long-run growth.

[@hetanshthakore5886]

@MarketPowerYT Doesn't it also depend a lot on what does the government do with the deficit. If the government spends money in building infrastructure by taking deficit like in China and India won't it boost gdp growth in both long and short run (as long as the projects are necessary and not vanity projects) ?

[@MarketPowerYT]

@@hetanshthakore5886 Yeah, you're citing things like what I said at the end of that segment. While it's possible for the government to do that, you also have to consider that the cost of public funds is usually higher than the cost of private funds. So the efficiency gains have to be pretty high to get a net positive. But it's possible!

[@y001536]

Actually the loanable funds theory does not work in the modern economy that does not base its currency on a gold standard. The interest rate of borrowing in a fiat currency for a government, no matter how large the amount, would not raise the interest rate level for the private sector. To use the Federal Reserve Bank, the central bank of the US, also known as the fed, as an example, the fed nowadays control the overnight interest rate in a target range set by the fed itself by paying interest to the reserve balances the banks held at the fed. It would not be affected by market forces. The loanable funds theory is commonly taught as a classical model but its assumptions do not match with reality of the modern economy today.

[@melonoid]

I promise it's not the most confusing equations in economics

[@nananou1687]

Great video and the animations were really helpful. The content is pretty crisp as well. Can you do a video on economists like Acemoglu and his work

[@MarketPowerYT]

I did this video on the Nobel prize. But I wouldn't be surprised if his work gets worked into a future video. kzbin.info/www/bejne/b3i8hndoqLWVqa8

[@bobinkurian3357]

There are multiple ways of calculating GDP. This video tells about GDP calculation based on expenditure and consumption. I must say that population is a very important factor. India is a country in the top 5 nations according to GDP, but it is poor because of low per capita income (PCI). I think PCI and economic development are more important factors of development. Also the top 1-10% people are the ones who are richest. The world is becoming more and more bipolar. Rich getting richer. Poor getting poorer.

[@zeki1]

You cited the bible but it is way easier to believe money has value even if, in the end, it's only paper or digital currency, and save it for the future than to believe that God will provide for our necessities and consider our circunstances. It's way easier to believe that the world will end than to believe a society without money like heaven. edit: then to than.

[@ngvkhtnw22]

But this equation does NOT explain why America only has to produce very LITTLE but can consume ENORMOUS amounts of goods by simply printing dollars that other poorer countries have no choice but to accept.

[@SpaghettiToaster]

It does, it's in the NX.

[@arturoalvarezdelatorre9366]

Literally the NX:

[@MrMineHeads.]

How in the hell are you saying that the US produces very little?? What are you talking about? The US is the largest economy on Earth.

[@JonahTheMans]

@@MrMineHeads. I think he’s talking about how we don’t export or create a lot of things on American soil in comparison to our vast imports and economic influence. This stems from the fact we are a primarily high skilled value-added economy. What that means is we import a lot of raw or partially developed materials, and refine or create more complex and valuable goods from those parts. Thus our output is always lower than our imports in terms of the volume of goods, but this is offset by the increased value of the goods produced due to the complexity/skills/tools required to create them.

[@JonahTheMans]

I can see this as a very valid question and concern, I’m assuming what I mentioned in a comment above, but can you elaborate on what you mean by “produce very little?” Do you mean in the volume of goods? The lack of exports/trade deficit? Or do you think we literally don’t create as much value or goods as other countries?

[@bragastraat2288]

Equations in econ are laughable

[@ilyesbejia6566]

if the pumpink is on the us soil its that it has be imported here at some point so its already count in importation. underground economy is usualy estimated and add to gdp. no empiric data prove that governement spending shrink investment most of time if it is well spending it increase it actually

[@trading-v3f]

average econ student problems

[@aashahafa]

y'all are stuck believing in Say's Law

[@rafaelflores448]

Are you talking about the strawmanned version of Say's law made by keynesians or the real one?

[@rafaelflores448]

Are you talking about the strawmanned version of Say's law made by keynesians or the real one?

[@aashahafa]

@@rafaelflores448 idk. can you explain the real one?

[@rafaelflores448]

@@aashahafa the strawmanned version is that supply creates its own demand which is obviously false, but Jean Baptist Say never said that. The "real" one is that in order for you to demand something first you need to have created the supply of something else, since demand is defined as not only the desire to buy something but also the actual purchasing power to buy it. Lets imagine three scenarios: In the first one we have Robinson Crusoe alone in a desert island, he is hungry and wants to eat a coconut, first he needs to produce a coconut before he can consume it, it doesnt matter how hungry he is, the production and supply need to come before the consumption. In the second one lets say that crusoe finds Friday also stuck in the same island and Friday wants to trade some fish in Exchange for some of Crusoe's coconuts. In order to effectivelly demand the coconuts from Crusoe he not only needs the desire to buy coconuts, but he also needs to first produce a supply of fish (the purchasing power) to buy the coconuts, unless Crusoe is a generous person he wont give the coconuts to Friday, he first needs to produce or promise to produce and exchange his fish with him in the future, in other words, supply preceds demand. The last one is in a money or indirect exchange economy where in order to buy something you need money and in order to get money first you need to produce the supply of a product or service to another person, even if you are getting credit from a bank, the money that the bank lends you is money that was saved by another person and they had to produce something in order to be able to save that money. The only exceptions to this would be if you stole the money or if the FED created currency and then gave it to the bank, even then the person who you stole from needed to have produced something in order to get that money and the currency only has purchasing power if you have a supply of something to buy.

[@rafaelflores448]

@aashahafa the strawmanned version is that supply creates its own demand which is obviously false, but Jean Baptist Say never said that. The "real" one is that in order for you to demand something first you need to have created the supply of something else, since demand is defined as not only the desire to buy something but also the actual purchasing power to buy it. Lets imagine three scenarios: In the first one we have Robinson Crusoe alone in a desert island, he is hungry and wants to eat a coconut, first he needs to produce a coconut before he can consume it, it doesnt matter how hungry he is, the production and supply need to come before the consumption. In the second one lets say that crusoe finds Friday also stuck in the same island and Friday wants to trade some fish in Exchange for some of Crusoe's coconuts. In order to effectivelly demand the coconuts from Crusoe he not only needs the desire to buy coconuts, but he also needs to first produce a supply of fish (the purchasing power) to buy the coconuts, unless Crusoe is a generous person he wont give the coconuts to Friday, he first needs to produce or promise to produce and exchange his fish with him in the future, in other words, supply preceds demand. The last one is in a money or indirect exchange economy where in order to buy something you need money and in order to get money first you need to produce the supply of a product or service to another person, even if you are getting credit from a bank, the money that the bank lends you is money that was saved by another person and they had to produce something in order to be able to save that money. The only exceptions to this would be if you stole the money or if the FED created currency and then gave it to the bank, even then the person who you stole from needed to have produced something in order to get that money and the currency only has purchasing power if you have a supply of something to buy.

[@PerriPaprikash]

i thought i was listening to factual lecture on economics then 1.5 mins in we get the bible.

[@yoavmor9002]

Reminds me of thermodynamics 🤮 It would probably be possible to apply the fundamental rules of thermodynamics on some economic variables and then we could derive an entire theory for free off the backs of physicists

[@gopniku2251]

Econophysics enters the chat