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Increase your welfare with international investment*
Increase your welfare with international investment*

The Solow model explains the determinants of returns to capital.

The slope of the production function above(black curve) indicates the return to investment.

A steep slope indicates a high return. This is because an increase in K causes a large increase in output.

This slope is determined by

  • the stock of capital
  • the stock of other substitute factors of production
  • the level of technology

Ceteris paribus,

  • greater the stock of capital, the lower the return on investment
  • greater the quantity of other factors of production, the higher the return on investment
  • greater the technological progress, greater the return on investment

When a country sends savings abroad, its output will fall. But,its income will grow. This is because citizens and firms who acquire higher return foreign assets earn higher income than they could have earned with lower-return domestic assets.

Thus, through international investment the welfare of both borrowers and lenders improve.

For instance, consider the foreign interest being higher than the domestic interest. In this case, international investment raises GNP although the GDP of one country falls to increase another.

In conclusion, a country with net investors will have a GNP that exceeds the GDP.

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Flow of Investment*
Flow of Investment*

Ìn countries where capital is relatively scarce, usually the returns are high. In this case, the investors would buy assets until they reach a global equilibrium return. The simple strategy to be used in this case is find the investment opportunities where equilibrium has not yet been reached. Then, the return will be higher than those investment opportunities where there is equilibrium.

Yet, investment does not flow in total to countries where capital is scarcest and returns are highest. Let us see the reasons behind this.

When investments depreciate, it is necessary to replace the stock of capital. For this purpose, an increasing level of savings is required. Thereby, the returns to investment will diminish. Hence, adding more investments merely does not increase economic growth.

Technological change along with investment results in greater economic growth

The possible solution to this is technological change. Each time of investment does not replace old stock of machines. Instead, it replaces a new and improved set.

According to Van den Berg, international investment is a vehicle for generating technological change in the recipient countries. Thereby, not all of the investments in countries with small supplies of capital will be successful.

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Ed Sheeran’s Statue in Moscow
Ed Sheeran’s Statue in Moscow

Yandex Music and Warner Music in Russia, together established the statue of Ed Sheeran reclining seductively in a pair of sunglasses, while dressed in a graffiti covered shirt and red shorts. This statue has many of the tattoos of Ed Sheeran replicated too. This indicates that fine attention on even the smallest things have been given.

However, the Moscow statue is not the first time Ed Sheeran has been inspired for a statue.

In 2016, Ed Sheeran inspired a pig statue, shown above. This was planted near Sheeran’s hometown of Framlingham. This pig was named Ed Sheer-ham.

And, now the public is encouraged to come and take pictures with the Ed Sheeran statues, to share on social media. Some fans have shown their desire on appraisals by drawing on Sheeran’s shirt and skin, adding tattoos and song lyrics.

This statue installation took place ahead of Ed Sheeran’s performance on July 19th at Otkritie Arena. This 28 year old star recently released his fourth album enlisting a bevy of names including Justin Bieber, Camila Cabello, Travis Scott and many more. This totalled to 64 000 combined sales within three days of release.

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The Car that glows at night-LumiLor
The Car that glows at night-LumiLor

This car lights up with something called LumiLor. It’s not LED light, but paint.

It does not just glow-in-the-dark. It is a special kind of paint that turns on and off by reacting to an electric charge.

How LumiLor comes in

Andy Zsinko had over 20 years of aftermarket painting experience creating custom designs for all types of vehicles. In 2009, a friend asked Andy to complete a special paint job on a motorcycle; a job that would cause the motorcycle to glow in the dark. However, he was unsatisfied with the finished product.

It had too short of a life and locked a mechanism to control the glow. He was curious and experimental. Unsatisfied with the norm, a self-described lab rat, he quickly got to work.

A year later and he had a functional prototype which he used to paint the album cover of Pink Floyd’s Dark Side of the Moon on a Kawasaki police. This product would inspire a whole team of people dedicated to making beautiful designs glow.

Darkseid Scientific Inc patented a product they call blue moon. It’s a spray-on product that illuminates when you apply an electrical current to it. It’s not like glow-in-the-dark paint. It can be applied to any surface in any variety of shapes and looks and acts just like regular paint.

When not charged, this Lexus painted with LumiLor for example looks like it came out of the factory. That is until you turn the LumiLor on. Electric currents excite the material.

This means you can get modulating pulsating light effects like this.

Darkseid Scientific Inc intends LumiLor to be used across the world in aftermarket shops.

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Cat Language
Cat Language

Although cats are unable to speak our human languages, they do have a variety of ways to communicate. Their type of vocalization comes out in different kinds of meowing.

But, if you want to know the different types of meows cats used to communicate as well as interpretations of their meanings, keep reading through this.

Currently, it is estimated that cats can emit more than 100 different types of vocalizations. However, many of these come under very similar categories and is possible to break them down into different songs which cats use for their daily communication.

When they want to draw their owners’ attention they meow. There is no single meaning for a cat’s meow. However, we can interpret what our cat wants to express, by paying attention to the tone intensity and frequency of the meow, as well as observing their body language.

In general, the more intense the cat’s meow the more urgent or important is the message they want to convey. Parain is characterized as a rhythmic sound emitted in a low volume which can also have a range of frequency. A low domestic cat’s purr is well known.

Wild cats will also vocalize this. Felines purr for a variety of reasons. According to their age and the reality they experience, a mother cat uses parent can. Their kittens during childbirth and the first days of their life before their eyes are ruel and many kittens vocalize this sign both when they breastfeed and when they are afraid of unknown stimuli in adult cats.

Purring occurs most often in positive situations. They are usually in a state of relaxation; comfort or contentedness such as when they are eating or being petted.

However, purring is not always synonymous with pleasure. Cats may purr when they are sick or vulnerable or a sign of fear in threatening situations. This could be when they are in confrontation with another cat or are being scolded by an owner.

The chirp is a sound similar to a musical trill in which the cat emits a sound with its mouth closed. It is an ascending and very short vocalization. Rarely lasting one second at a time. In general, this sound is most often used by cats and their kittens to communicate with each other during breastfeeding.

However, adult cats can also make this thrashing sign to give their loved ones a friendly greeting. Cats use snorting as a form of self-defense. They open their mouths wide and expel air abruptly to frighten possible predators or other animals which invade their territory and may threaten their well-being.

Sometimes the air is expelled so quickly. The snort sounds more like a spitting noise. It is a very peculiar and typical feline vocalization which it could begin making from the age of three weeks onwards.

When the mating and breeding season arrives, almost all cats with vocalization ability emit sexual calls. In cats, both females and males vocalize an intensely prolonged moon to communicate their presence and attract their progress. Males will also make this noise to ward away other males in their territory.

The royalness of the warning sign cats give when they are angry or stressed and don’t want to be disturbed are different. The vocalizations can be short or long. But, the meaning is the same.

If your cat growls at you, it is best to give them some space and leave them to can dine. However, if they do with too much frequency, is a sign of some physical or mental health issue. So, a visit to the vet is necessary.

If you’ve already heard a cat cry or screaming pain, you know how distressing this high-pitched and intense song can be. The cats might scream when they have been injured. But, it is also a noise they make after mate.

There’s a distress call which is vocalized almost exclusively by kidneys during their first weeks of life. Its meaning in very general terms is basically an example; mom the sound is similar to a meow. But the kitten emits it loudly and urgently to communicate a need or imminent feelings of danger.

This is why they are sometimes known as an emergency call. This could be due to feeling trapped, being hungry, cold or whatever a kitten may need.

Shrieks and howls are long high-pitched sounds which usually appear as the next step after a growl. Especially, if the person in which the growl was directed, has not heeded their warning. At this point, the reason for making the sign, is not to warn them. But, to threaten the other individual and show they are ready for combat. For this reason, this sound is most common in unneutered adult meals.

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Earn a high return with low investment risk*
Earn a high return with low investment risk*

Countries engage in international investment due to the many benefits that can be gained from it. Two of them are inter temporal comparative advantage and diversification. The first has been discussed in a previous article.

Diversification is a way to reduce the risks related to holding assets. This risk reduction is done by spreading their wealth across a variety of different types of assets. This is beneficial to both savers and investors. This concept of not putting all their eggs in one basket, developed by Harry Markowitz and James Tobin in the 1950s is of great benefit to international investors.

International Diversification is Beneficial-Why??

The return of an asset is mostly uncertain. Hence, there is risk associated with all assets purchased. This is because future earnings can vary.

Asset acquirers are usually wealth holders who are interested in maximizing their income over time. But, they are risk averse. Therefore, the attraction towards an asset will be based on both the risk and the return. In this case, there will be a trade off between risk and return. That is, higher the risk, higher the return.

With diversification what happens is assets whose earnings are not perfectly correlated are grouped together. This reduces the risk of their holdings without reducing the risk of their return.

Detailing this instance, when wealth is spread across diverse assets whose values vary differently over time, in response to economic conditions, the overall value of the set of assets will not change as much as the value of any one asset. This is because when he value of asset falls, others may not fall or may even rise. This keeps the average value of the portfolio from changing as much.

Thereby, diversification is important since it increases the tendency of savers to store their wealth in a diversified portfolio. This in turn, lets the economy to efficiently channel savings to its most productive investment projects. Thus, pooling assets from different countries will permit greater diversification enabling greater international investment.

In conclusion, international asset exchanges let consumers more efficiently allocate their consumption overtime. Also, they channel savings to the highest return investments allowing investors to reduce their risk.

Billionaires with the modest lifestyle
Billionaires with the modest lifestyle

People of regular means have always been fascinated by the ultra-rich. Perhaps, because we know the chances are incredibly slim that we will ever be among them.

Most of us can hardly fathom the lifestyle of those with more money than they could possibly ever spend and it’s safe to say that if you woke up tomorrow with a billion dollars in the bank, the mother of all spending sprees would be among your first orders of business. But, it can be helpful to remember that all of those business moguls in tech entrepreneurs didn’t get obscenely wealthy by spending all of their money.

When it comes to the richest of the rich, some of their spending habits would shock you in the exact opposite way that you might think. Looking at these icons of extreme wealth who are surprising Paragons of frugality or to put it a bit more bluntly,

Charlie Ergen

He is the richest person in Colorado. He got his start selling satellite dishes out of the back of his truck. Eventually, parlaying this small business into Dish Network itself, one of the most notoriously frugal businesses in America.

Strangely in his youth, he was known to be an aficionado of gambling. But, in his personal and professional life, Ergen is rather adverse to taking financial risks as president and CEO of Dish Network. He runs the company with an iron fist. At one time requiring employees to clock in with fingerprint scanners.

Also, he’s known for publicly humiliating executives who have the gall to be even a few minutes late for meetings. But, he certainly can’t be accused of flaunting his wealth. To this day, Ergen forgoes dining out for lunch in favor of bringing sandwiches from home in brown paper bags.

He never even flies first class, preferring to save cash by flying coach even though he could afford a fleet of private planes. Employees may not always agree with his management style. But, even they have to admire his dedication to avoiding reckless spending.

Ergen claims that his frugal ways save him thousands of dollars every year.

Carlos Slim Helu

Easily the richest man in Mexico Carlos Slim Helu built his fortune in telecom before delving into retail. Among many other arenas, he owns more than 200 companies including, Telmex; Mexico’s largest phone service provider and he has more than once sat atop Forbes list of the richest people in the world with an estimated net worth of over seventy billion dollars.

Such wealth should be associated with multi-million dollar mansions, Shefford limousines and high-end tailored suits. Exactly none of which are part of Heller’s style.

He’s known to live in the same modest home he’s owned for over 30 years and spends most of his downtime not jet-setting around the globe, but living a quiet domestic life with his children and grandchildren. Most of his clothes are purchased right off the rack from one of the many retail outlets which he owns.

Even in a country where the wealthy are often targets for roving criminals, he still drives himself wherever he goes. Even more strangely, despite being quite tech savvy he doesn’t own a computer. He prefers to do his own accounting and correspondence by hand, with a paper ledger.

He’s been called one of the most astute investors on the planet and he has the personal fortune to back it up. But, even if he intends to buy your company, he’ll still show up to the meeting in his own car, wearing a cheap name-brand suit.

Jim Walton

Jim Walton is the youngest son of Sam Walton; the founder of Walmart, which automatically puts him in some very wealthy company. He presides over Walton enterprises, which holds 90 billion dollars worth of Walmart stock in.

He also manages several smaller companies. His personal net worth is right around 40 billion dollars and you’d expect him to make his residence in some posh location on one of America’s coasts.

But, Jim prefers a different way of life. He makes his home in the tiny town of Bentonville, Arkansas with a population of less than 50,000. The very small town where the first Walmart opened in 1970.

Jim still puts in long hard work days. He drives to work in a rusty old Dodge Dakota pickup truck. Usually, the first to arrive and the last to leave his employees. All agree that none of them would ever want his job because the man simply works too hard.

Not exactly typical of a youngest billionaire in a family, full of them but in the words of former Walmart CEO David Glass, Jim is just like his father . He likes to get things done.

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Partial Equilibrium Model of International Savings*
Partial Equilibrium Model of International Savings*

Since the general equilibrium model of international investments consists of the pitfalls of not indicating how the inter temporal welfare gains and losses are distributed, the partial equilibrium model of trade was introduced.

Market for loanable funds/ savings

As shown above the demand for loanable funds is a downward sloping curve since the investment opportunities have a descending order with the interest rates. On the other hand, the supply curve is upward sloping because people tend to save more when the interest rate is high. The equilibrium occurs when both demand supply are equal.

Accordingly, the total returns to the financial and real investments determine the demand for loanable funds. This comprises of the three shaded areas shown below.

In the above diagram, the green shaded area indicates the opportunity cost of forgone consumption by savers. In simple, this is the amount of consumption which the savers at the equilibrium level are giving up, due to saving instead of consuming. However, these savers earn a surplus over their perceived value of forgone consumption. This is the area indicated by the red shade. That is, at any given savings from zero upto the equilibrium savings amount, the interest rate earned will remain at the equilibrium rate.

Just as the savers gain and lose in this market, the users of this savings also earn a surplus indicated by the blue shaded area. That is from zero level of demand upto the equilibrium level, the interest rate to be given is the equilibirum interest rate.

Thereby, as a result of savings, both borrowers and lenders will benefit in general. This is why these savings take an international look too.

International Savings and Investments

Thereby, different countries will engage in exchanges in purchasing power. In this case, due to differences in demand and supply conditions in the different countries, the interest rates will vary. This results in arbitrage opportunities for savers and investors.

In this case, the owners of wealth will prefer to place their wealth where the returns are greatest. This will result in international savings. International savings will only occur if the international interest rate is equal to or higher than the domestic interest rate.

Therefore, some groups may lobby against international investment. In countries with low rates of return on investment, borrowers may object to investment outflows. In this case, sometimes in order to avoid accusations these savers might appeal to nationalistic instincts that claim that foreign investment will lead to foreign control of the economy. On the other hand, there is possibility in some countries for domestic borrowers to lobby against international savings claiming that outflows of savings will de-industrialize the country

Whichever the case in general international savings occur today and will occur in future too.

Resource credits to Econtutor@Zeecollege

Birthday celebration with Candle Magic
Birthday celebration with Candle Magic

If you have ever blown out candles on your birthday cake during your birthday party, then you have practiced, what is known as candle magic.

If you’re a parent who buys or bakes cakes for their kids and put candles on them for your kids to blow out, then your kids are practicing candle magic. And, you are indeed teaching them magical rituals. You’re passing these rituals down through the generations and just think about it for a second.

You’re at your birthday party and the candles are lit in front of you as a kid, you’re encouraged to make a wish silently most time. Close your eyes, don’t tell anyone that the wish and then blow the candles out. Do we ever really question why would we do something like that?

It doesn’t seem logical. Yet, it’s something that we’ve just always done. Without knowing, having the slightest idea where it comes from, we have just keep on doing it.

Richard Webster writes in his books, candle magic for beginners, you may be surprised to learn that you have been practicing candle magic since you were a toddler. Making a wish when you blew out the candles on your birthday cake is a good example of candle magic.

These are esoteric practices. Even the birthday cake itself, when you trace the birthday cake back, it traces back to ancient Europe. You know where they believed in the many gods and goddesses, a lot of deities and these cakes, they usually were not sweet. But, they were made as offerings to these gods and goddesses. They didn’t really have candles on them.

The candle started with the RET; the cakes that were made for the goddess Artemis; the goddess of the Moon and wilderness and animals and things like that. So, if you believe in the Torah or you believe in the Bible, the Quran, you consider these practices to be pagan and if the ritual of blowing out the candle has a definite mystical and magical nature to it and if you read your holy books, I’m sure that they condemn these type of practices.

These type of practices are considered to be idolatry, witchcraft and sorcery. At the same time, if you believe in these religions and you practice blowing out candles or you encourage your kids too, you’re doing both at the same time. You’re practicing witchcraft.

Even when we look at the tradition, you’ll see that you specifically blow out candles. A lot of you know magical rituals. You don’t blow out the candles. You would snuff them out and put them out with your fingers. But, blowing out the candle, the reason you will blow out the candles is a certain way 0to bite sin, some type of energy, some type of intent, some type of wish to the gods or you know the higher powers, the forces that be or what happy.

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General Equilibrium model of international investment*
General Equilibrium model of international investment*

Consider a simple two period model. Under the assumptions of an economy beginning at period 1 with a certain factor endowment of labour and capital with which to produce output( Y=f(k.l)

Assuming that labour and technology are constant and capital has diminishing returns, at any point of time, the economy’s productive capacity is limited by the quantity of scarce productive factors and a fixed level of technology. The output produced in this way in a certain period, can be used to consume products or to invest in capital goods to be used in future. This is how the choice of investment comes into being. However, this is only the supply side of investment.

On the demand side, the country’s inter temporal differences can be indicated using indifference curves. Indifference curves are used to represent consumer preferences for food and clothing, in the general equilibrium model of trade.

Under the assumption of a two time period life, the equilibrium level at which the consumers’ welfare is maximized is where the indifference curve meet the consumption possibility frontier. This is the optimal combination.

However, the above graph applies only to the situation of a closed economy. That is because in such a case, there are no resources or technology to reach consumption combinations that lie outside its consumption possibility frontier. Furthermore, even investment is limited to domestic savings in the above case.

International investment

However, according to Van den Berg(2002), if people can use their savings to acquire foreign assets or if they acquire foreign savings by selling assets to foreigners, they may be able to reach inter temporal consumption combinations that lie outside the inter temporal consumption possibility frontier.

In this case, the international interest rate plays a great role in deciding on foreign investments. This is because people, firms, banks, governments and other organizations in a country borrow form savers in another country due to variations in interest rate. Savings will flow from the country with lower interest rate, to that with higher interest rate.

In a simple two period model, the interest rate is determined by the tangency between the inter temporal consumption possibility frontier and the highest attainable indifference curve. Thereby, any differences in interest rates between countries, is the result of dissimilar indifference curves(consumer preferences) or dissimilar inter temporal consumption possibility frontiers(different rates of return to investment).

Dissimilar indifference curves are a result of diversity in people’s

  • tastes
  • age
  • family responsibilities
  • present and expected future wealth and income
  • willingness and ability to bear risk

Different returns to investment are a result of availability of factors that can be combined with

  • capital
  • technology
  • efficiency of the financial system in allocating savings to investors

Economists have used mathematics to model saving and consumption over many periods. Accordingly, an economy will maximize welfare over time by the selection of a series of consumption and saving levels that indicate the economy’s growing production function and inter temporal consumption preferences.

In this multi period model, technological progress, repeated investments, lifetime consumption maximization, savings flow are considered. Accordingly, countries with the greatest potential to growth become net borrowers in the short term.

Countries with slow growing economies and few investment opportunities tend to be net lenders abroad and they run trade surpluses.

Amidst them, rapidly growing economies have an inter temporal comparative advantage. This is because their investments promise greater returns. They also take international investment and unbalanced trade to exploit such inter temporal comparative advantages.

Thereby, the lifetime welfare of people will be higher than in a closed economy when there is inter temporal trade.

Resource credits to Econtutor@Zeecollege

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