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Unformatted text preview: CHAPTER 1 Introduction 1.1 What this book is about This is not a book on mathematics, nor is it a book on economics. It is true that the over-riding emphasis is on the economics, but the economics under review is specified very much in mathematical form. Our main concern is with dynamics and, most especially with phase diagrams, which have entered the economics literature in a major way since 1990. By their very nature, phase diagrams are a feature of dynamic systems. But why have phase diagrams so dominated modern economics? Quite clearly it is because more emphasis is now placed on dynamics than in the past. Com- parative statics dominated economics for a long time, and much of the teaching is still concerned with comparative statics. But the breakdown of many economies, especially under the pressure of high ination, and the major inuence of in- ationary expectations, has directed attention to dynamics. By its very nature, dynamics involves time derivatives, dx / dt , where x...
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- Fall '11