Question

Explain how and why the concept of “all other things unchanged” is so important in the study of economics?

Answer 1

InIn mid-1970s, I applied to Delhi School of Economics for a Master’s programme. An interview was part of the admission process and I was asked a question with a concocted scenario. As Prime Minister, Indira Gandhi goes to USA and forgets to take any money with her. However, she is so well known that she manages to pay for her board and lodging through IOUs issued to the bearer. Once back in India, she was supposed to honour these IOUs. But, busy with hurly burly of governing India, she forgot. Who paid for her stay in USA?
Economists love the expression ‘ceteris paribus’, ‘other things remaining unchanged’. Ceteris paribus, this is classic quantity theory of money.

Money supply in USA increased and every US citizen paid for Indira Gandhi’s stay through higher prices. Someone sent me a concocted graph, showing a dramatic increase in economists in India after November 8. The Indira Gandhi episode in reverse – November 8 means reduction in Gross Domestic Produce (GDP), prices and interest rates.
Let me muddy waters, ignoring temporary dislocation and focusing on what happens thereafter: Real estate and land prices will crash. Bad for GDP. GDP is value of goods and services produced in a year. I purchase a plot of land from you. Does that enter GDP calculations? Of course not, no value addition has occurred. For GDP calculation purposes, that’s a transfer payment.

A mock-graph of Economists in India that’s doing Social Media rounds. Creator unknown.
On a broader point, demonetization is about stocks, its impact on flows (GDP is a flow) needs careful reasoning.
Fine, but brokerage is a service and that enters GDP calculations. True, but what are brokerage fees based on? Are they in “black” or “white”?
Which land/real estate price declines, the “white” (registered valued) or the “black” (premium)? If the answer to either question is “black”, what does this have to do with official and legal measurement of GDP?
On prices, do we have in mind a decline in prices or a decline in inflation (where rate of increase in prices slows)?
But there’s the rental market too and those prices can affect the denominator when nominal GDP is deflated to get real GDP.
Perhaps, but depends on ceteris paribus assumptions.
There was some cash in the system. That was for transactions, speculation (people were holding on to it for no particular obvious reason) or black. After the transition period is over, that transaction bit comes back into the system. Ceteris paribus, there is no change. The speculative cash holding was “idle”, it wasn’t performing multiplier effects money supply is supposed to have. That comes into the system, with positive externalities and efficiencies.
Ceteris paribus, that has an expansionary effect. As for the black bit, bulk of the tax evading part probably comes back into the system, while the illegal black part is destroyed. Apart from affecting RBI’s liabilities, what does destruction of a stock of black wealth do?
The elements of cash that come into the system are with RBI or scheduled commercial banks, though either can be “channeled” into what is “government” proper. That’s going to be spent. Therefore, one can’t do a ceteris paribus on the contractionary, ignoring the expansionary. That’s the danger with making strong statements on interest rates. Interest rates may well decline, but not per se because of this. They are largely a function of what RBI does.
The waters are exceedingly muddy on aggregate demand and supply, which is why I am skeptical about this exponential increase in economic expertise. Non-aggregate redistribution arguments are more robust, since there is a transfer from relatively rich to relatively poor. So are sector specific arguments (real estate, construction, trade, elections). mid-1970s, I applied to Delhi college of Economics for a masters programme. An interview was a part of the admission process and i was requested a query with a concocted state of affairs. As high Minister, Indira Gandhi goes to u.S. And forgets to take any cash with her. Nevertheless, she is so good recognized that she manages to pay for her board and lodging by means of IOUs issued to the bearer. As soon as again in India, she used to be speculated to honour these IOUs. But, busy with hurly burly of governing India, she forgot. Who paid for her keep in usa?
Economists love the expression ceteris paribus different things last unchanged. Ceteris paribus, that is classic wide variety concept of money.

Money give in u.S. Expanded and each US citizen paid for Indira Gandhi stay via better prices. Any individual sent me a concocted graph, showing a dramatic expand in economists in India after November eight. The Indira Gandhi episode in reverse November eight way reduction in Gross home Produce (GDP), prices and interest premiums.
Let me muddy waters, ignoring transitority dislocation and specializing in what occurs thereafter: real property and land costs will crash. Dangerous for GDP. GDP is value of items and offerings produced in a 12 months. I purchase a plot of land from you. Does that enter GDP calculations? Of course not, no price addition has befell. For GDP calculation functions, thats a switch fee.

A mock-graph of Economists in India thats doing Social Media rounds. Creator unknown.
On a broader factor, demonetization is about shares, its affect on flows (GDP is a float) wishes careful reasoning.
Satisfactory, but brokerage is a carrier and that enters GDP calculations. Actual, however what are brokerage charges headquartered on? Are they in black or white?
Which land/actual estate rate declines, the white(registered valued) or the black (top class)? If the reply to either query is black, what does this have to do with reliable and legal dimension of GDP?
On costs, do we have in mind a decline in costs or a decline in inflation (where price of broaden in costs slows)?
But there the apartment market too and people costs can influence the denominator when nominal GDP is deflated to get actual GDP.
Might be, but depends on ceteris paribus assumptions.
There was some cash in the procedure. That was for transactions, hypothesis (individuals were maintaining on to it for no designated apparent purpose) or black. After the transition period is over, that transaction bit comes back into the process. Ceteris paribus, there is not any alternate. The speculative money maintaining used to be idle, it wasn't performing multiplier results cash deliver is supposed to have. That comes into the method, with constructive externalities and efficiencies.
Ceteris paribus, that has an expansionary outcomes. As for the black bit, bulk of the tax evading part more often than not comes again into the method, even as the illegal black section is destroyed. Apart from affecting RBI's liabilities, what does destruction of a inventory of black wealth do?
The factors of cash that come into the method are with RBI or scheduled industrial banks, though either may also be channeled into what is govt suitable. That going to be spent. Thus, possible do a ceteris paribus on the contractionary, ignoring the expansionary. Tha the chance with making powerful statements on curiosity premiums. Interest premiums may just well decline, however no longer per se on account that of this. They are generally a perform of what RBI does.
The waters are really muddy on mixture demand and provide, which is why i am skeptical about this exponential increase in fiscal potential. Non-aggregate redistribution arguments are extra robust, considering there is a switch from rather wealthy to somewhat poor. So are sector specific arguments (actual estate, construction, exchange, elections).