Economics involves how human beings make decisions through comparing alternatives. Besides, it is divided into two; microeconomics and macroeconomics. Microeconomics focuses on an individual’s action within the economy, while macroeconomics centers on the overall production, unemployment, inflation, and government deficits (Rice University, n.d.). The two complement each other to give an overall perspective on the economy. Moreover, there are many theories used to describe the economy. They include; the Keynesian, Capitalism, and Friedmanite. Keynes advocated for increased government expenditures and lower taxes to stimulate the economy (Koehn, 2011). In addition, Friedmanite believed in society’s prosperity within free markets (The School of Life, 2014). Additionally, Adam Smith’s economic theory focused on making the capitalist economy more useful and humane (The School of Life, 2014). He thought that the following factors would help accomplish Capitalism, including specialization of work, consumer capitalism, and education. This paper discusses the role of economic theories in the economy.
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Adam Smith, the father of Capitalism, introduced capitalist ideas such as the division of labor and employee productivity. He put forward the proposal of a free market system with the government playing a minimal role in the economy (The School of Life, 2014). Additionally, Keynes argued that a government should deploy fiscal and monetary measures to help neutralize the effects of economic recessions and depressions through government expenditure (Koehn, 2011). Hayek argued in support of Capitalism and free markets as society was driven by innovation and entrepreneurship (The School of Life, 2014. These theories show the role of government in ensuring financial stability. However, the authorities’ intervention should be minimal so that the economy does not suffer actual inflation rates, leading to businesses’ bankruptcy. Free market capitalism is suitable for any economy. It allows the company to trade freely with little state interference and ensures no monopolies hence market equality and justice.
In conclusion, economic theories like Keynesian, Friedmanite, and Capitalism help solve a nation’s economic issues. However, the free market capitalism theory ensures all businesses’ stability and equal allocation for all companies under the same economic conditions with little government interference. Free market capitalism focuses on benefiting all individuals and should be adopted to reduce injustices and the vast wealth distribution gaps.
Koehn, N. (2011). The tale of the dueling economists. The New York Times.
Rice University. (n.d.). 1.2 microeconomics and macroeconomics – principles of economics. BCcampus Open Textbooks – Open Textbooks Adapted and Created by BC Faculty.
The School of Life. (2014). Political Theory –An Inquiry into the Nature and Causes of the Wealth of the Nations by Adam Smith [Video]. YouTube.