My (admittedly simple-minded) answer would be “other things being equal it has no effect at all”.
Each day you and your parents do whatever it is you do, creating a given amount of wealth (albeit perhaps in such a way that it’s impossible to say exactly how much of this wealth you personally created, rather than your colleagues, or the equipment you use). Then a bunch of wealth gets redistributed in a funny way (through wages and rents being paid). But changing the way that wealth is redistributed doesn’t affect the ‘total rate of wealth-generation’ which is what GDP is trying (sometimes unsuccessfully, as James_K says) to measure. In just the same way, getting a pay rise doesn’t in itself help the economy (but it may have been caused by you doing more valuable work, which does help).
I’m pretty sure this is wrong. If I have a spare apartment and start renting it out, I’m creating wealth, not just redistributing it. So changing the pattern of who rents from whom should influence the total amount of wealth created.
Though I should clarify that when I talk about “the size of the economy” I’m talking about something intangible—the ‘wealth of the nation’, or more precisely the ‘nation’s rate of wealth-creation’ - rather than simply GDP. Perhaps GDP will reflect the changing rents, perhaps not, depending on which type of GDP we’re talking about (I seem to recall that there are several, including a ‘spending’ measure and an ‘income’ measure.)
But we’re not talking about someone renting a previously empty apartment, we’re talking about a change of occupier. The ‘wealth’ of the apartment is merely being ‘consumed’ by someone else.
Suppose without loss of generality (?) that the person who was previously in your parents’ apartment is now in your old apartment. Then we can describe the change as follows:
Two people have swapped apartments.
They may be paying different rents from before.
Neither 1 nor 2 in itself changes the size of the economy. (Although, if a rent goes up because an apartment is more desirable then that changes the size of the economy.)
Apartments don’t have a single intrinsic “desirability” value. Different people assign different values to the same apartment. If you think about it, the fact that different people can value a thing differently is the only reason any deals happen at all. The sum you agree to pay is a proxy for the value you place on the thing.
No, you can’t assume without loss of generality that the person who was previously in my parents’ apartment will be willing or able to move to mine. It depends on the relationship between X and Y.
No, you can’t assume without loss of generality that the person who was previously in my parents’ apartment will be willing or able to move to mine. It depends on the relationship between X and Y.
But the set of living spaces is the same as before. Can’t we assume for simplicity that, even if it’s not as simple as two people swapping places with each other, what we have is a ‘permutation’ such that all previously occupied houses and apartments remain occupied?
Then once again we can factor the change into (1) a permutation and (2) a change of rent, and ask whether either of them changes the wealth of the nation. I’m pretty sure that (2) in itself has no effect—it’s just a ‘redistribution’ between landlords and their tenants. Whether (1) has an effect depends on whether or not we’re including the fact that different people may make different assessments of desirability (i.e. whether different people have different preferences about the kind of apartment they’d like to live in.)
Of course you’re quite right that different people do have different preferences—I was merely ignoring this for simplicity—but in any case the statement of the problem says nothing explicit about your or anyone else’s preferences, it only talks about X and Y. Are your apartment-preferences supposed to change depending on the values of X and Y?
You’re right that (2) has no effect, but (1) probably does have effect. I thought we could somehow guess the effect of (1) by looking at X and Y, but now I see it’s not easy.
My (admittedly simple-minded) answer would be “other things being equal it has no effect at all”.
Each day you and your parents do whatever it is you do, creating a given amount of wealth (albeit perhaps in such a way that it’s impossible to say exactly how much of this wealth you personally created, rather than your colleagues, or the equipment you use). Then a bunch of wealth gets redistributed in a funny way (through wages and rents being paid). But changing the way that wealth is redistributed doesn’t affect the ‘total rate of wealth-generation’ which is what GDP is trying (sometimes unsuccessfully, as James_K says) to measure. In just the same way, getting a pay rise doesn’t in itself help the economy (but it may have been caused by you doing more valuable work, which does help).
I’m pretty sure this is wrong. If I have a spare apartment and start renting it out, I’m creating wealth, not just redistributing it. So changing the pattern of who rents from whom should influence the total amount of wealth created.
Though I should clarify that when I talk about “the size of the economy” I’m talking about something intangible—the ‘wealth of the nation’, or more precisely the ‘nation’s rate of wealth-creation’ - rather than simply GDP. Perhaps GDP will reflect the changing rents, perhaps not, depending on which type of GDP we’re talking about (I seem to recall that there are several, including a ‘spending’ measure and an ‘income’ measure.)
But we’re not talking about someone renting a previously empty apartment, we’re talking about a change of occupier. The ‘wealth’ of the apartment is merely being ‘consumed’ by someone else.
Suppose without loss of generality (?) that the person who was previously in your parents’ apartment is now in your old apartment. Then we can describe the change as follows:
Two people have swapped apartments.
They may be paying different rents from before.
Neither 1 nor 2 in itself changes the size of the economy. (Although, if a rent goes up because an apartment is more desirable then that changes the size of the economy.)
Apartments don’t have a single intrinsic “desirability” value. Different people assign different values to the same apartment. If you think about it, the fact that different people can value a thing differently is the only reason any deals happen at all. The sum you agree to pay is a proxy for the value you place on the thing.
No, you can’t assume without loss of generality that the person who was previously in my parents’ apartment will be willing or able to move to mine. It depends on the relationship between X and Y.
But the set of living spaces is the same as before. Can’t we assume for simplicity that, even if it’s not as simple as two people swapping places with each other, what we have is a ‘permutation’ such that all previously occupied houses and apartments remain occupied?
Then once again we can factor the change into (1) a permutation and (2) a change of rent, and ask whether either of them changes the wealth of the nation. I’m pretty sure that (2) in itself has no effect—it’s just a ‘redistribution’ between landlords and their tenants. Whether (1) has an effect depends on whether or not we’re including the fact that different people may make different assessments of desirability (i.e. whether different people have different preferences about the kind of apartment they’d like to live in.)
Of course you’re quite right that different people do have different preferences—I was merely ignoring this for simplicity—but in any case the statement of the problem says nothing explicit about your or anyone else’s preferences, it only talks about X and Y. Are your apartment-preferences supposed to change depending on the values of X and Y?
You’re right that (2) has no effect, but (1) probably does have effect. I thought we could somehow guess the effect of (1) by looking at X and Y, but now I see it’s not easy.