Economics Dynamics Problems 22

Economics Dynamics Problems 22 - 6 Economic Dynamics...

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Unformatted text preview: 6 Economic Dynamics Economic relationships broke down, stagflation became typical of many West- ern economies, and Conservative policies became prominent. Theories, especially macroeconomic theories, were breaking down, or at best becoming poor predictors of economic changes. The most conspicuous change was the rapid (and acceler- ating) rise in inflation that occurred with rising unemployment. This became a feature of most Western economies. Individuals began to expect price rises and to build this into their decision-making. If such behaviour was to be modelled, and it was essential to do so, then it inevitably involved a dynamic model of the macro- economy. More and more, therefore, articles postulated dynamic models that often involved inflationary expectations. Inflation, however, was not the only issue. As inflation increased, as OPEC changed its oil price and as countries discovered major resource deposits, so there were major changes to countries’ balance of payments situations. Macro-there were major changes to countries’ balance of payments situations....
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