11-10-2005, 11:58 AM
Introduction
The word "economics" is derived from oikonomikos, which means skilled in household management. Although the word is very old, the discipline of economics as we understand it today is a relatively recent development. Modern economic thought emerged in the 17th and 18th centuries as the western world began its transformation from an agrarian to an industrial society.
Despite the enormous differences between then and now, the economic problems with which society struggles remain the same:
How do we decide what to produce with our limited resources?
How do we ensure stable prices and full employment of our resources?
How do we provide a rising standard of living both for ourselves and for future generations?
Progress in economic thought toward answers to these questions tends to take discrete steps rather than to evolve smoothly over time. A new school of ideas suddenly emerges as changes in the economy yield fresh insights and make existing doctrines obsolete. The new school eventually becomes the consensus view, to be pushed aside by the next wave of new ideas.
This process continues today and its motivating force remains the same as that three centuries ago: to understand the economy so that we may use it wisely to achieve society's goals.
http://www.frbsf.org/publications/educatio...s/grtschls.html
Summary
Economic theories are constantly changing. Keynesian theory, with its emphasis on activist government policies to promote high employment, dominated economic policymaking in the early post-war period. But, starting in the late 1960s, troubling inflation and lagging productivity prodded economists to look for new solutions. From this search, new theories emerged:
Monetarism updates the Quantity Theory, the basis for macroeconomic analysis before Keynes. It reemphasizes the critical role of monetary growth in determining inflation.
Rational Expectations Theory provides a contemporary rationale for the pre-Keynesian tradition of limited government involvement in the economy. It argues that the market's ability to anticipate government policy actions limits their effectiveness.
Supply-side Economics recalls the Classical School's concern with economic growth as a fundamental prerequisite for improving society's material well-being. It emphasizes the need for incentives to save and invest if the nation's economy is to grow.
These theories and others will be debated and tested. Some will be accepted, some modified, and others rejected as we search to answer these basic economic questions: How do we decide what to produce with our limited resources? How do we ensure stable prices and full employment of resources? How do we provide a rising standard of living both for now and the future?
The word "economics" is derived from oikonomikos, which means skilled in household management. Although the word is very old, the discipline of economics as we understand it today is a relatively recent development. Modern economic thought emerged in the 17th and 18th centuries as the western world began its transformation from an agrarian to an industrial society.
Despite the enormous differences between then and now, the economic problems with which society struggles remain the same:
How do we decide what to produce with our limited resources?
How do we ensure stable prices and full employment of our resources?
How do we provide a rising standard of living both for ourselves and for future generations?
Progress in economic thought toward answers to these questions tends to take discrete steps rather than to evolve smoothly over time. A new school of ideas suddenly emerges as changes in the economy yield fresh insights and make existing doctrines obsolete. The new school eventually becomes the consensus view, to be pushed aside by the next wave of new ideas.
This process continues today and its motivating force remains the same as that three centuries ago: to understand the economy so that we may use it wisely to achieve society's goals.
http://www.frbsf.org/publications/educatio...s/grtschls.html
Summary
Economic theories are constantly changing. Keynesian theory, with its emphasis on activist government policies to promote high employment, dominated economic policymaking in the early post-war period. But, starting in the late 1960s, troubling inflation and lagging productivity prodded economists to look for new solutions. From this search, new theories emerged:
Monetarism updates the Quantity Theory, the basis for macroeconomic analysis before Keynes. It reemphasizes the critical role of monetary growth in determining inflation.
Rational Expectations Theory provides a contemporary rationale for the pre-Keynesian tradition of limited government involvement in the economy. It argues that the market's ability to anticipate government policy actions limits their effectiveness.
Supply-side Economics recalls the Classical School's concern with economic growth as a fundamental prerequisite for improving society's material well-being. It emphasizes the need for incentives to save and invest if the nation's economy is to grow.
These theories and others will be debated and tested. Some will be accepted, some modified, and others rejected as we search to answer these basic economic questions: How do we decide what to produce with our limited resources? How do we ensure stable prices and full employment of resources? How do we provide a rising standard of living both for now and the future?