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69-469: The book provides an introduction to principles of economics , including demand-supply interactions , market failures , externalities , globalisation , international trade and comparative advantage . It explains in non-technical terms how Starbucks and other coffee providers price their products , why it is hard to buy a decent used car , why the health insurance system in the United States

138-702: A definition of economics as a study of human behaviour, subject to and constrained by scarcity, which forces people to choose, allocate scarce resources to competing ends, and economise (seeking the greatest welfare while avoiding the wasting of scarce resources). According to Robbins: "Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses". Robbins' definition eventually became widely accepted by mainstream economists, and found its way into current textbooks. Although far from unanimous, most mainstream economists would accept some version of Robbins' definition, even though many have raised serious objections to

207-451: A distinct field. The book focused on determinants of national income in the short run when prices are relatively inflexible. Keynes attempted to explain in broad theoretical detail why high labour-market unemployment might not be self-correcting due to low " effective demand " and why even price flexibility and monetary policy might be unavailing. The term "revolutionary" has been applied to the book in its impact on economic analysis. During

276-461: A faster productivity growth from the 13th century onwards. The cultural influence was persistent even after the monasteries were dissolved. Modern attitudes towards hard work are positively related with influence of the Cistercians in the region. The correlation between religion and economic outcomes can be interpreted in two ways: (1) a feature intrinsic to religion which affects growth or (2)

345-450: A feature correlated to religion but not religion itself which affects growth. Existing cross-country literature is criticised for inability to distinguish between the two explanations, a problem termed endogeneity bias . Controlling for country fixed effects mitigates bias but more recent studies utilise field and natural experiments to identify the causal effect of religion. Robustness of cross-country results to changes in specification of

414-892: A greater influence on behaviour than belief orthodoxy. As Darwin (1874) among others argue, the promotion of cooperative in-group behaviours is not unique to religious networks. Experimental methods can be applied to isolate the effect of religion on behaviour patterns and to distinguish between believing versus belonging channels. Experimental methods are useful in the economics of religion to standardise measurement and identify causal effect. Methods include looking at religion in various games – Prisoner's dilemma , public goods game , ultimatum game , dictator game and parametric choice . Generally, as Hoffman's (2011) survey shows, few statistically significant results have been identified which commentators attribute to opposing positive versus negative effects between and within individuals. Effects of religion on economic outcomes Studies suggest there

483-420: A lower relative cost of production, rather relying only on its own production. It has been termed a "fundamental analytical explanation" for gains from trade . Coming at the end of the classical tradition, John Stuart Mill (1848) parted company with the earlier classical economists on the inevitability of the distribution of income produced by the market system. Mill pointed to a distinct difference between

552-449: A more comprehensive theory of costs on the supply side. In the 20th century, neoclassical theorists departed from an earlier idea that suggested measuring total utility for a society, opting instead for ordinal utility , which posits behaviour-based relations across individuals. In microeconomics , neoclassical economics represents incentives and costs as playing a pervasive role in shaping decision making . An immediate example of this

621-467: A more important role in mainstream economic theory. Also, heterogeneity among the economic agents, e.g. differences in income, plays an increasing role in recent economic research. Other schools or trends of thought referring to a particular style of economics practised at and disseminated from well-defined groups of academicians that have become known worldwide, include the Freiburg School ,

690-597: A proportion of the value their work had created. Marxian economics was further developed by Karl Kautsky (1854–1938)'s The Economic Doctrines of Karl Marx and The Class Struggle (Erfurt Program) , Rudolf Hilferding 's (1877–1941) Finance Capital , Vladimir Lenin (1870–1924)'s The Development of Capitalism in Russia and Imperialism, the Highest Stage of Capitalism , and Rosa Luxemburg (1871–1919)'s The Accumulation of Capital . At its inception as

759-409: A rapidly growing population against a limited amount of land meant diminishing returns to labour. The result, he claimed, was chronically low wages, which prevented the standard of living for most of the population from rising above the subsistence level. Economist Julian Simon has criticised Malthus's conclusions. While Adam Smith emphasised production and income, David Ricardo (1817) focused on

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828-469: A set of stable preferences, a definite overall guiding objective, and the capability of making a choice. There exists an economic problem, subject to study by economic science, when a decision (choice) is made by one or more players to attain the best possible outcome. Keynesian economics derives from John Maynard Keynes , in particular his book The General Theory of Employment, Interest and Money (1936), which ushered in contemporary macroeconomics as

897-409: A single tax on income of land owners. In reaction against copious mercantilist trade regulations, the physiocrats advocated a policy of laissez-faire , which called for minimal government intervention in the economy. Adam Smith (1723–1790) was an early economic theorist. Smith was harshly critical of the mercantilists but described the physiocratic system "with all its imperfections" as "perhaps

966-452: A social science, economics was defined and discussed at length as the study of production, distribution, and consumption of wealth by Jean-Baptiste Say in his Treatise on Political Economy or, The Production, Distribution, and Consumption of Wealth (1803). These three items were considered only in relation to the increase or diminution of wealth, and not in reference to their processes of execution. Say's definition has survived in part up to

1035-435: A sought after end). Some subsequent comments criticised the definition as overly broad in failing to limit its subject matter to analysis of markets. From the 1960s, however, such comments abated as the economic theory of maximizing behaviour and rational-choice modelling expanded the domain of the subject to areas previously treated in other fields. There are other criticisms as well, such as in scarcity not accounting for

1104-442: A synthesis emerged by the 2000s, often given the name the new neoclassical synthesis . It integrated the rational expectations and optimizing framework of the new classical theory with a new Keynesian role for nominal rigidities and other market imperfections like imperfect information in goods, labour and credit markets. The monetarist importance of monetary policy in stabilizing the economy and in particular controlling inflation

1173-853: Is a social science that studies the production , distribution , and consumption of goods and services . Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics analyses what is viewed as basic elements within economies , including individual agents and markets , their interactions, and the outcomes of interactions. Individual agents may include, for example, households, firms, buyers, and sellers. Macroeconomics analyses economies as systems where production, distribution, consumption, savings , and investment expenditure interact, and factors affecting it: factors of production , such as labour , capital , land , and enterprise , inflation , economic growth , and public policies that have impact on these elements . It also seeks to analyse and describe

1242-500: Is a channel from religious behaviours to macroeconomic outcomes of economic growth, crime rates and institutional development. Scholars hypothesise religion impacts economic outcomes through religious doctrines promoting thrift, work ethic, honesty and trust. These channels were described by Max Weber in his work The Protestant Ethic and the Spirit of Capitalism . Weber indicates that Protestant teachings were an important force behind

1311-421: Is a term for the "way (nomos) to run a household (oikos)", or in other words the know-how of an οἰκονομικός ( oikonomikos ), or "household or homestead manager". Derived terms such as "economy" can therefore often mean "frugal" or "thrifty". By extension then, "political economy" was the way to manage a polis or state. There are a variety of modern definitions of economics ; some reflect evolving views of

1380-438: Is also applied to such diverse subjects as crime , education , the family , feminism , law , philosophy , politics , religion , social institutions , war , science , and the environment . The earlier term for the discipline was "political economy", but since the late 19th century, it has commonly been called "economics". The term is ultimately derived from Ancient Greek οἰκονομία ( oikonomia ) which

1449-599: Is failing, and why poor countries remain poor while the People's Republic of China has continuously grown rich in the last couple of decades. Freakonomics author Steven Levitt called it "a rare specimen: a book on economics that will enthrall...Beautifully written and argued, it brings the power of economics to life." This article about a book on economics or finance is a stub . You can help Misplaced Pages by expanding it . Economics Economics ( / ˌ ɛ k ə ˈ n ɒ m ɪ k s , ˌ iː k ə -/ )

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1518-459: Is mixed. Religion can have long-lasting effects on a society and its economy. For instance, municipalities of Spain with a history of a stronger inquisitorial presence show lower economic performance and educational attainment today. Similarly, Protestantism in Germany has long affected education and thus economic performance. In 1816, school attendance was about 50% in catholic regions while it

1587-413: Is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it

1656-598: Is the consumer theory of individual demand, which isolates how prices (as costs) and income affect quantity demanded. In macroeconomics it is reflected in an early and lasting neoclassical synthesis with Keynesian macroeconomics. Neoclassical economics is occasionally referred as orthodox economics whether by its critics or sympathisers. Modern mainstream economics builds on neoclassical economics but with many refinements that either supplement or generalise earlier analysis, such as econometrics , game theory , analysis of market failure and imperfect competition , and

1725-780: The School of Lausanne , the Stockholm school and the Chicago school of economics . During the 1970s and 1980s mainstream economics was sometimes separated into the Saltwater approach of those universities along the Eastern and Western coasts of the US, and the Freshwater, or Chicago school approach. Within macroeconomics there is, in general order of their historical appearance in

1794-433: The macroeconomics of high unemployment. Gary Becker , a contributor to the expansion of economics into new areas, described the approach he favoured as "combin[ing the] assumptions of maximizing behaviour, stable preferences , and market equilibrium , used relentlessly and unflinchingly." One commentary characterises the remark as making economics an approach rather than a subject matter but with great specificity as to

1863-467: The neoclassical model of economic growth for analysing long-run variables affecting national income . Neoclassical economics studies the behaviour of individuals , households , and organisations (called economic actors, players, or agents), when they manage or use scarce resources, which have alternative uses, to achieve desired ends. Agents are assumed to act rationally, have multiple desirable ends in sight, limited resources to obtain these ends,

1932-415: The societal to the microeconomic level: Economics is a study of man in the ordinary business of life. It enquires how he gets his income and how he uses it. Thus, it is on the one side, the study of wealth and on the other and more important side, a part of the study of man. Lionel Robbins (1932) developed implications of what has been termed "[p]erhaps the most commonly accepted current definition of

2001-400: The "choice process and the type of social interaction that [such] analysis involves." The same source reviews a range of definitions included in principles of economics textbooks and concludes that the lack of agreement need not affect the subject-matter that the texts treat. Among economists more generally, it argues that a particular definition presented may reflect the direction toward which

2070-486: The 1970s and 1980s, when several major central banks followed a monetarist-inspired policy, but was later abandoned because the results were unsatisfactory. A more fundamental challenge to the prevailing Keynesian paradigm came in the 1970s from new classical economists like Robert Lucas , Thomas Sargent and Edward Prescott . They introduced the notion of rational expectations in economics, which had profound implications for many economic discussions, among which were

2139-589: The afterlife. The colonisation of religious minds by the morally concerned supernatural or “Big Gods” diffused behaviours derived from moral instruction. The belonging approach to religion considers the social notion of between and within religious groups. Iannaconne (1998) assigns religion as a ' club good ' from a rational choice perspective where costly rituals exclude free-riders from in-group benefits. Field experiments also evidence religious people are more trusting and cooperative with fellow religious adherents. Many experimental studies suggest group belonging has

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2208-407: The analysis of wealth: how wealth is created (production), distributed, and consumed; and how wealth can grow. But he said that economics can be used to study other things, such as war, that are outside its usual focus. This is because war has as the goal winning it (as a sought after end ), generates both cost and benefits; and, resources (human life and other costs) are used to attain the goal. If

2277-479: The area of inquiry or object of inquiry rather than the methodology. In the biology department, it is not said that all biology should be studied with DNA analysis. People study living organisms in many different ways, so some people will perform DNA analysis, others might analyse anatomy, and still others might build game theoretic models of animal behaviour. But they are all called biology because they all study living organisms. According to Ha Joon Chang, this view that

2346-443: The author believes economics is evolving, or should evolve. Many economists including nobel prize winners James M. Buchanan and Ronald Coase reject the method-based definition of Robbins and continue to prefer definitions like those of Say, in terms of its subject matter. Ha-Joon Chang has for example argued that the definition of Robbins would make economics very peculiar because all other sciences define themselves in terms of

2415-517: The colonies. Physiocrats , a group of 18th-century French thinkers and writers, developed the idea of the economy as a circular flow of income and output. Physiocrats believed that only agricultural production generated a clear surplus over cost, so that agriculture was the basis of all wealth. Thus, they opposed the mercantilist policy of promoting manufacturing and trade at the expense of agriculture, including import tariffs. Physiocrats advocated replacing administratively costly tax collections with

2484-462: The complementary effects of religious values such as charity, forgiveness, honesty and tolerance and religious social groups where membership instils favouritism or discrimination towards in or outgroup members. The believing channel of religion behaviours concerns costly effort concerned with divine reputation. Azzi and Ehrenberg (1975) propose individuals allocate time and money to secular and religious institutions to maximise utility in this life and

2553-488: The design of modern monetary policy and are now standard workhorses in most central banks. After the 2007–2008 financial crisis , macroeconomic research has put greater emphasis on understanding and integrating the financial system into models of the general economy and shedding light on the ways in which problems in the financial sector can turn into major macroeconomic recessions. In this and other research branches, inspiration from behavioural economics has started playing

2622-506: The distribution of income among landowners, workers, and capitalists. Ricardo saw an inherent conflict between landowners on the one hand and labour and capital on the other. He posited that the growth of population and capital, pressing against a fixed supply of land, pushes up rents and holds down wages and profits. Ricardo was also the first to state and prove the principle of comparative advantage , according to which each country should specialise in producing and exporting goods in that it has

2691-622: The economy . Max Weber later identified a relationship between religion and economic behaviour, attributing in 1905 the modern advent of capitalism to the Protestant reformation . Research highlights the importance of religious orthodoxy on moral behaviours and versions of the Golden Rule “Do unto others as you would have others do unto you” are common to most major religions. Others argue it promotes cooperation and trust within culturally defined groups or clubs . Studies compare

2760-469: The economy can and should be studied in only one way (for example by studying only rational choices), and going even one step further and basically redefining economics as a theory of everything, is peculiar. Questions regarding distribution of resources are found throughout the writings of the Boeotian poet Hesiod and several economic historians have described Hesiod as the "first economist". However,

2829-688: The first large-scale macroeconometric model , applying the Keynesian thinking systematically to the US economy . Immediately after World War II, Keynesian was the dominant economic view of the United States establishment and its allies, Marxian economics was the dominant economic view of the Soviet Union nomenklatura and its allies. Monetarism appeared in the 1950s and 1960s, its intellectual leader being Milton Friedman . Monetarists contended that monetary policy and other monetary shocks, as represented by

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2898-540: The following decades, many economists followed Keynes' ideas and expanded on his works. John Hicks and Alvin Hansen developed the IS–LM model which was a simple formalisation of some of Keynes' insights on the economy's short-run equilibrium. Franco Modigliani and James Tobin developed important theories of private consumption and investment , respectively, two major components of aggregate demand . Lawrence Klein built

2967-509: The global economy . Other broad distinctions within economics include those between positive economics , describing "what is", and normative economics , advocating "what ought to be"; between economic theory and applied economics ; between rational and behavioural economics ; and between mainstream economics and heterodox economics . Economic analysis can be applied throughout society, including business , finance , cybersecurity , health care , engineering and government . It

3036-424: The growth in the money stock, was an important cause of economic fluctuations, and consequently that monetary policy was more important than fiscal policy for purposes of stabilisation . Friedman was also skeptical about the ability of central banks to conduct a sensible active monetary policy in practice, advocating instead using simple rules such as a steady rate of money growth. Monetarism rose to prominence in

3105-463: The importance of various market failures for the functioning of the economy, as had Keynes. Not least, they proposed various reasons that potentially explained the empirically observed features of price and wage rigidity , usually made to be endogenous features of the models, rather than simply assumed as in older Keynesian-style ones. After decades of often heated discussions between Keynesians, monetarists, new classical and new Keynesian economists,

3174-467: The literature; classical economics , neoclassical economics , Keynesian economics , the neoclassical synthesis , monetarism , new classical economics , New Keynesian economics and the new neoclassical synthesis . Economics of religion The economics of religion concerns both the application of the techniques of economics to the study of religion and the relationship between economic and religious behaviours . Contemporary writers on

3243-449: The market's two roles: allocation of resources and distribution of income. The market might be efficient in allocating resources but not in distributing income, he wrote, making it necessary for society to intervene. Value theory was important in classical theory. Smith wrote that the "real price of every thing ... is the toil and trouble of acquiring it". Smith maintained that, with rent and profit, other costs besides wages also enter

3312-437: The most famous passages in all economics," Smith represents every individual as trying to employ any capital they might command for their own advantage, not that of the society, and for the sake of profit, which is necessary at some level for employing capital in domestic industry, and positively related to the value of produce. In this: He generally, indeed, neither intends to promote the public interest, nor knows how much he

3381-503: The pessimistic analysis of Malthus (1798). John Stuart Mill (1844) delimited the subject matter further: The science which traces the laws of such of the phenomena of society as arise from the combined operations of mankind for the production of wealth, in so far as those phenomena are not modified by the pursuit of any other object. Alfred Marshall provided a still widely cited definition in his textbook Principles of Economics (1890) that extended analysis beyond wealth and from

3450-487: The present, modified by substituting the word "wealth" for "goods and services" meaning that wealth may include non-material objects as well. One hundred and thirty years later, Lionel Robbins noticed that this definition no longer sufficed, because many economists were making theoretical and philosophical inroads in other areas of human activity. In his Essay on the Nature and Significance of Economic Science , he proposed

3519-409: The price of a commodity. Other classical economists presented variations on Smith, termed the ' labour theory of value '. Classical economics focused on the tendency of any market economy to settle in a final stationary state made up of a constant stock of physical wealth (capital) and a constant population size . Marxist (later, Marxian) economics descends from classical economics and it derives from

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3588-429: The purest approximation to the truth that has yet been published" on the subject. The publication of Adam Smith 's The Wealth of Nations in 1776, has been described as "the effective birth of economics as a separate discipline." The book identified land, labour, and capital as the three factors of production and the major contributors to a nation's wealth, as distinct from the physiocratic idea that only agriculture

3657-412: The scope and method of economics, emanating from that definition. A body of theory later termed "neoclassical economics" formed from about 1870 to 1910. The term "economics" was popularised by such neoclassical economists as Alfred Marshall and Mary Paley Marshall as a concise synonym for "economic science" and a substitute for the earlier " political economy ". This corresponded to the influence on

3726-486: The so-called Lucas critique and the presentation of real business cycle models . During the 1980s, a group of researchers appeared being called New Keynesian economists , including among others George Akerlof , Janet Yellen , Gregory Mankiw and Olivier Blanchard . They adopted the principle of rational expectations and other monetarist or new classical ideas such as building upon models employing micro foundations and optimizing behaviour, but simultaneously emphasised

3795-444: The source of the word economy. Joseph Schumpeter described 16th and 17th century scholastic writers, including Tomás de Mercado , Luis de Molina , and Juan de Lugo , as "coming nearer than any other group to being the 'founders' of scientific economics" as to monetary , interest , and value theory within a natural-law perspective. Two groups, who later were called "mercantilists" and "physiocrats", more directly influenced

3864-406: The state or commonwealth with a revenue for the publick services. Jean-Baptiste Say (1803), distinguishing the subject matter from its public-policy uses, defined it as the science of production, distribution, and consumption of wealth . On the satirical side, Thomas Carlyle (1849) coined " the dismal science " as an epithet for classical economics , in this context, commonly linked to

3933-408: The subject of mathematical methods used in the natural sciences . Neoclassical economics systematically integrated supply and demand as joint determinants of both price and quantity in market equilibrium, influencing the allocation of output and income distribution. It rejected the classical economics' labour theory of value in favour of a marginal utility theory of value on the demand side and

4002-402: The subject or different views among economists. Scottish philosopher Adam Smith (1776) defined what was then called political economy as "an inquiry into the nature and causes of the wealth of nations", in particular as: a branch of the science of a statesman or legislator [with the twofold objectives of providing] a plentiful revenue or subsistence for the people ... [and] to supply

4071-662: The subject trace it back to Adam Smith (1776). Empirical work examines the causal influence of religion in microeconomics to explain individual behaviour and in the macroeconomic determinants of economic growth . Religious economics (or theological economics ) is a related subject sometimes overlapping or conflated with the economics of religion. Adam Smith laid a foundation for economic analysis for religion in The Wealth of Nations (1776), stating that religious organisations are subject to market forces , incentive and competition problems like any other sector of

4140-471: The subject": Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses. Robbins described the definition as not classificatory in "pick[ing] out certain kinds of behaviour" but rather analytical in "focus[ing] attention on a particular aspect of behaviour, the form imposed by the influence of scarcity ." He affirmed that previous economists have usually centred their studies on

4209-826: The subsequent development of the subject. Both groups were associated with the rise of economic nationalism and modern capitalism in Europe. Mercantilism was an economic doctrine that flourished from the 16th to 18th century in a prolific pamphlet literature, whether of merchants or statesmen. It held that a nation's wealth depended on its accumulation of gold and silver. Nations without access to mines could obtain gold and silver from trade only by selling goods abroad and restricting imports other than of gold and silver. The doctrine called for importing inexpensive raw materials to be used in manufacturing goods, which could be exported, and for state regulation to impose protective tariffs on foreign manufactured goods and prohibit manufacturing in

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4278-523: The transition to modern day capitalism in Europe. Other studies highlight the effects of religion on human capital formation as the main mechanism behind the dependency. Human capital formation is driven by higher religious importance of literacy Effects of economic outcomes on religion Studies indicate a two-way interaction between economic growth and religion. Secularization theory predicts that economic development reduces religious participation. The empirical evidence in favour of this relationship

4347-467: The war is not winnable or if the expected costs outweigh the benefits, the deciding actors (assuming they are rational) may never go to war (a decision ) but rather explore other alternatives. Economics cannot be defined as the science that studies wealth, war, crime, education, and any other field economic analysis can be applied to; but, as the science that studies a particular common aspect of each of those subjects (they all use scarce resources to attain

4416-515: The word Oikos , the Greek word from which the word economy derives, was used for issues regarding how to manage a household (which was understood to be the landowner, his family, and his slaves ) rather than to refer to some normative societal system of distribution of resources, which is a more recent phenomenon. Xenophon , the author of the Oeconomicus , is credited by philologues for being

4485-460: The work of Karl Marx . The first volume of Marx's major work, Das Kapital , was published in 1867. Marx focused on the labour theory of value and theory of surplus value . Marx wrote that they were mechanisms used by capital to exploit labour. The labour theory of value held that the value of an exchanged commodity was determined by the labour that went into its production, and the theory of surplus value demonstrated how workers were only paid

4554-705: Was about 66% in Protestant regions. Higher literacy rates of Protestants can be observed in the 1870s/1880s in Prussia. It can be caused by the fact, that Martin Luther favoured Christians reading the Bible by themselves Elements of Protestant ethic described by Weber and economic prosperity may have emerged before the Reformation . In case of England, regions that were exposed to Cistercian monasteries experienced

4623-421: Was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. The Reverend Thomas Robert Malthus (1798) used the concept of diminishing returns to explain low living standards. Human population , he argued, tended to increase geometrically, outstripping the production of food, which increased arithmetically. The force of

4692-892: Was productive. Smith discusses potential benefits of specialisation by division of labour , including increased labour productivity and gains from trade , whether between town and country or across countries. His "theorem" that "the division of labor is limited by the extent of the market" has been described as the "core of a theory of the functions of firm and industry " and a "fundamental principle of economic organization." To Smith has also been ascribed "the most important substantive proposition in all of economics" and foundation of resource-allocation theory—that, under competition , resource owners (of labour, land, and capital) seek their most profitable uses, resulting in an equal rate of return for all uses in equilibrium (adjusted for apparent differences arising from such factors as training and unemployment). In an argument that includes "one of

4761-437: Was recognised as well as the traditional Keynesian insistence that fiscal policy could also play an influential role in affecting aggregate demand . Methodologically, the synthesis led to a new class of applied models, known as dynamic stochastic general equilibrium or DSGE models, descending from real business cycles models, but extended with several new Keynesian and other features. These models proved useful and influential in

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