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Unformatted text preview: Theories of Economic Policy In developing an economic policy, government officials rely on the recommendations of economists who typically base their analyses on theories of how the economy works or should work. As might be expected, economists often disagree on the cause of a stock market decline or the best solution for curbing inflation. Laissez-faire economics The first, and for a long time the only, widely accepted economic theory was the laissez-faire theory proposed by Adam Smith in his Wealth of Nations (1776). Laissez-faire roughly translates as "to leave alone," and it means that government should not interfere in the economy. This theory favors low taxes and free trade, and it strongly holds that the market is self-adjusting whatever happens will be corrected over time without the help of the government. Keynesian economic theory...
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This note was uploaded on 11/20/2011 for the course POSI 1310 taught by Professor Arnold during the Spring '08 term at Texas State.
- Spring '08