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The GDP (gross domestic product) statistic portrays a view that the key driving factor of economic growth is not the production of wealth but rather its consumption. Instead, it is a calculation of the value of final goods and services produced during a particular time interval, usually a quarter or a year. Since consumer outlays are the largest

Federal Reserve policies attempting to promote economic and price stability are a major cause for the recent acceleration in the consumer prices’ rise. According to popular thinking, the central bank is supposed to promote both steady economic growth and price stability, the economy perceived as a spaceship that occasionally slips from stability

By popular thinking, the key driver of economic growth is the increase in total demand for goods and services. It is also held that overall output increases by a multiple of the increase in expenditure by government, consumers and businesses. It is not surprising, then, that most commentators believe that through fiscal and monetary stimulus,

According to the June 1, 2022, Financial Times , Janet Yellen, the US Treasury secretary conceded she was wrong last year about the path inflation would take. Yellen told CNN: There have been unanticipated and large shocks to the economy that have boosted energy and food prices and supply bottlenecks that have affected our economy badly that I

The occurrence of stagflation is associated with a situation of general strengthening in the momentum of prices while at the same time the pace of economic activity is declining. A famous stagflation episode occurred during the 1974û75 period, as year-on-year industrial production fell by nearly 13 percent in March 1975 while the yearly growth

In their writings , Finn Kydland and Edward C. Prescott (K-P), the 2004 Nobel laureates in economics, had hypothesized that a major cause behind boom-bust cycles is technology shocks. In order to assess the importance of this claim, which they labeled the theory of real business cycles, K-P employed the Solow growth model (after Robert Solow, the

According to popular thinking, the definition of money is flexible. Sometimes the money supply could be M1 (currency and demand deposits); at other times it could be M2 (all of M1, plus savings deposits, time deposits, and money market funds) or some other M. According to popular thinking, what determines whether M1, M2, or some other M is

According to a relatively new economics field called Behavioral Economics (BE), one’s emotional state rather than reason influences their economic decisions. Vernon Smith, the BE economist who won a Nobel in economics, wrote : People like to believe that good decision making is a consequence of the use of reason, and that any influence that the

Many economists, including Milton Friedman, have claimed that reality is elusive and that one cannot know its true nature. Most mainstream economists also believe that data gives us the state of the economy. By inspecting numbers such as gross domestic product (GDP) or the consumer price index, only then can an economist accurately assess the

Various assumptions employed by mainstream economists are detached from reality. For instance, in order to explain the economic crisis in Japan in the 1990s, Nobel laureate in economics Paul Krugman employed a model that assumes that people are identical and live forever and that output is given. While admitting that these assumptions are not