Tag Archives: economics

What are areas where economies of scale do not hold up?

My answer on Quora: Economies of scale are not always true for ever-increasing levels of production. Sometimes, a company can get too big and begin to experience diseconomies of scale where the cost of producing an extra unit begins to rise. Economies of Scale Most companies start off with economies of scale, where they get more efficient […]

What are the different markets in economics?

My answer on Quora: A market is for anything that has someone who wants something and someone who provides it. Or, where a transaction takes place. A stock market is where people buy (want) and sell (provide) stocks. Stocks are bought and sold in different “exchanges”, like the New York Stock Exchange, Nasdaq, or the Bombay Stock […]

Can pessimism on the economy actually help trigger an economic decline?

My post on Quora: More broadly, expectations can play an important role in economic decisions and can sometimes be self-fulling. Economic Decisions and Expectations From the demand side, an economy can be thought of as a series of spending, saving, borrowing and investment decisions by people, companies, investors, national governments, city councils, etc. These decisions can be […]

Why is the US dollar still the currency that matters the most globally?

My answer on Quora: Of all the currencies around the world, the US dollar matters the most globally because it is most readily available, most widely accepted in international transactions, and, crucially, the most trusted. If little country A is selling a commodity, for example, to little country Z, that transaction is most likely to […]

What did John Maynard Keynes get right about economics?

My answer on Quora: Two things: 1) Fiscal Policy Very simply (and very broadly), Keynes established that fiscal policy can play a role in managing aggregate demand. In plain English: government spending (whether it’s increasing or decreasing) can help the economy from getting too hot or too cold. When it is too hot (resources (capital […]

Competition Challenges in the Digital Economy

From Brookings (with Nirav Patel): Slow productivity growth and rising income inequality have shaped the world economy in a time of rapid technological change. A variety of explanations have emerged to help us understand these related trends, but one overarching theme is the decline in competition. The combination of increasingly concentrated markets, rising market power of large firms, and […]

Why do people have such strong political opinions about economic issues? If we knew what works economically, why wouldn’t all people already support that?

My answer on Quora: Two key points stand out to me on this issue. The first is on what we know about the economy. The second is on how we talk about the economy. We do know a lot about the economy, but we don’t always know what the best way forward is. This is […]

What is your favorite economic principle?

My answer on Quora: Thinking at the margin! The principle here is that decisions are made when considering one step ahead. What impact will this extra move have on X? Will one more A result in B? What would it mean for my budget (or time) if I buy Y instead of X? This kind […]

What is the difference between human and economic development?

My answer on Quora: When economic development is inclusive, the two can be thought to go hand in hand. This is largely because there is no precise definition of economic development. For example, take the Cambridge Dictionary’s definition: The process in which an economy grows or changes and becomes more advanced, especially when both economic and social […]

When inflation is running wild, what should governments do to the interest rates?

My answer on Quora: It depends on the source of inflation. Interest rates impact borrowing/savings decisions and can also send a signal about the seriousness of the central bank (whose mandate typically includes some kind of price stability). If inflation shoots up because of a supply shock, then there may not be much interest rates […]

What are the pros of having a world currency?

My answer on Quora: Let’s define a world currency as a widely used currency for both international transactions and official reserves. An alternative interpretation would be a single currency for the whole world (see here for more on that). Direct benefits include very little exchange rate risk in international transactions, importing goods using your own […]

What is the difference between ‘economics’ and the ‘economy’?

My answer on Quora: The economy can be thought of as a system of production and exchange of goods and services among people and organizations (private or public). The money, price and financial system are there to facilitate production and exchange, and provide a common unit of value to different goods and services. Traditionally, economics […]

What are the reasons why GDP may understate or overstate economic well-being?

My answer on Quora: There is a distinction between welfare and output in economics. Gross Domestic Product (GDP) is a measure of how much an economy produces in a given period of time. This can typically be done by looking at aggregate expenditures, income, or value-add throughout the production process. It does not measure welfare or well-being, and by definition, is […]

What is the difference between economic and non-economic activity?

My answer on Quora: Sometimes it is easy to distinguish economic from non-economic activity, like buying a T-shirt vs. swimming in a lake. Other times, it is not so clear. For example, is the activity of Quora users considered economic? Users exchange a lot of information free of charge, and Quora is a very valuable […]

When is “good for the economy” not “good for the people”?

My answer on Quora: Let’s begin with a narrow view, then zoom out. With a very narrow view, I can think of an example or two, but they don’t amount to much. In the end, there is no durable example of something that is good for the economy but not good for the broad majority […]

Can devaluing a country’s currency increase its foreign reserves?

My answer on Quora: It depends on the size and direction of the pressure on the currency before the devaluation, and how close the new value of the currency is relative to its market value. First, a devaluation implies that a central bank is moving its currency from one fixed exchange rate to another one where it is worth less, relative to the currency […]

What is the most misunderstood economic concept?

My answer on Quora: That there are laws in economics. In economics, every answer begins with “it depends”. This can be frustrating when you want a straight answer, but it is useful because you have to look at all the circumstances in a particular case before responding with a policy, for example, to fix something that […]