Economic Theory Essay Sample

Economic Theory Pages
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After reading the two articles in Modules 1 and 2 related to Economic Theory (first,“How Did Economists Get It So Wrong” and second, “History of Economics Playground”), reconstruct what happened from 2006 through 2012 as it relates to microeconomic theory. Was there too much focus on the macro climate and not enough on the micro climate? Do you concur more with Krugman or Giraud? What is the basis for your opinion? Be sure to isolate other peer reviewed articles using the library that back your viewpoint and use it as a basis for analysis, in addition to what you see happening in the market yourself. Compare and contrast the two articles and the two authors’ perceptions of the market.

The global economy recovers from the crisis that engulfed global financial markets in the course of 2008. The effort to stave off total economic collapse has left governments burdened with massive debt that will take years of painful effort to work off. The policy prescriptions of market liberalism, including deregulation, privatization and regressive tax reform, are being advanced with seemingly undiminished confidence.Economics, as a field, got in trouble because economists were seduced by the vision of a perfect, frictionless market system. If the profession is to redeem itself, it will have to reconcile itself to a less alluring vision — that of a market economy that has many virtues but that is also shot through with flaws and frictions. The good news is that we don’t have to start from scratch. The Crisis between 2006 – 2102 basis in the microeconomics theory is a global effect. The financial crisis of 2007–2008. In 2008 financial crisis, is considered by many economists to be the worst financial crisis since the Great Depression of the 1930s.

It resulted in the threat of total collapse of large financial institutions, the bailout of banks by national governments, and downturns in stock markets around the world. In many areas, the housing market also suffered, resulting in evictions, foreclosures and prolonged unemployment. The crisis played a significant role in the failure of key businesses, declines in consumer wealth estimated in trillions of US dollars, and a downturn in economic activity leading to the 2008–2012 global recession and contributing to the European sovereign-debt crisis. The active phase of the crisis, which manifested as a liquidity crisis, can be dated from August 7, 2007, when BNP Paribas terminated withdrawals from three hedge funds citing “a complete evaporation of liquidity. Typical American families did not fare as well, nor did those “wealthy-but-not wealthiest” families just beneath the pyramid’s top. On the other hand, half of the poorest families did not have wealth declines at all during the crisis.

The Federal Reserve surveyed 4,000 households between 2007 and 2009, and found that the total wealth of 63 percent of all Americans declined in that period. 77 percent of the richest families had a decrease in total wealth, while only 50 percent of those on the bottom of the pyramid suffered a decrease. Paul Krugman has been notable for his willingness to consider the failures in economic analysis exposed by the crisis. As Krugman says, dynamic stochastic general equilibrium (DSGE) modeling was beautiful (at least to economists) and illuminated some aspects of the truth, but beauty came first. The failure of DGSE models to predict the crisis or to provide useful policy guidance requires a return to the basic Keynesian insight that the economy can be far away from general equilibrium for long periods. The percetions in how Krugman see the market is this offer the observation of fresh-water economists since most of the neo-Classicists were in places like Chicago and Minnesota versus the salt-water economists, located in the universities along both coasts. Market economies work on the assumption that market forces, such as supply and demand, are the best determinants of what is right for a nation’s well-being. These economies rarely engage in government interventions such as price fixing, license quotas and industry subsidizations.

While most developed nations today could be classified as having mixed economies, they are often said to have market economies because they allow market forces to drive most of their activities, typically engaging in government intervention only to the extent that it is needed to provide stability. Although the market economy is clearly the system of choice in today’s global marketplace, there is significant debate regarding the amount of government intervention considered optimal for efficient economic operations. What I see happening in the market is the expansion of the technology, manufacturing and industry, international trade, transportation, and tourism. the expansion of the American and global automotive markets manufacturing in the state grew 6.6% from 2001 to 2006 In 2008, an economic and financial crisis impacted global auto industry sales. For 2010, the domestic automakers reported significant profits indicating the beginning of rebound.The tourism is an important economic factor, comprising nine percent of the area’s two million jobs.

Part II: Reflection Essay

Buying a House or Rent a House

It is a curious thing how this module has alot in common with the decisions that I made in my life in the last 6 months. 6 Months ago I have been planning how to buy a house, the steps that I needed to take, and the stuff that I needed to know before buying a house. The market changeed in a matter of weeks, asking a lot of questions like should I buy 5 arm fixed or 30 years fixed? or should I wait when the market comes down so my interest rate wil be better. After a lot of research trying to get the best advice and knowledge in how to make the best decision finally I made my decision. I will buy a house. It took me 5 months to study the first step like the microeconomics that explained more on how people make decisions, learning the cost of something, using the marginal change making adjustment to my initial plan, because no matter how you plan your life it will never take the same road that you want you are always going to face some changes so you have to improvise and make the best decision to the best of your knowledge.

When you are buying something you had to be careful with the incetives that people have with the deals and offers they give you. When it is time to make a decision I always think in the future on how that decision is going to affect my future or my family, because sometimes we make the wrong decisions and we have to live our life with those decisions. In my life I have made many wrong decisions, but the way I see it is you will always get something positive from wrong decisions, learn how to react, how to be responsible for your actions. This Class so far is excellent you can get a lot tools, a lot knowledge in how to be better in your social and personal life, how to implement that knowledge in a busissnes and preparing yourself for a better future.

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