There are a number of important questions about business cycles which remain to be answered conclusively. They include the following:

  • Are there long cycles coexisting with the business cycle? If there are, then the practice of treating business cycles as ‘growth cycles’ (i.e. fluctuations around a linear or log linear growth trend) will be misleading. This practice is also dubious if the trend itself is stochastic or nonlinear, as noted in section The Long Swing Hypothesis and the Growth Trend .

 Brief Overview of Cycle Modelling

Like Marx, Keynes failed to formalise a complete theory of dynamic economic development or of its components, growth and business cycles. It is a testament to the magnitude of the problem that these two great economic and social thinkers were unable to formulate such a theory.

Key concepts discussed in this chapter: economics as a social science, positive economics, normative economics, economic model, economic theory, economic way of thinking, production possibilities frontier (PPF), opportunity cost, productive efficiency, allocative efficiency, Pareto efficiency, specialization, absolute advantage, comparative advantage

Economics as a science

The BIG Idea

Scarcity is the basic economic problem that requires people to make choices about how to use limited resources.

Why It Matters ?

Have you ever wanted to buy something or to participate in an activity, but you couldn’t because you didn’t have enough income or time? How do scarce resources like time and income affect you and everyone around you? In this chapter, read to learn about what economics is and how it is part of your daily life.

  • ECONOMIST(1723–1790)
  • Founder of Classical Economics
  • Professor of Moral Philosophy, University of Glasgow,
  • Author of The Theory of Moral Sentiments (1759),
  • Author of An Inquiry Into the Nature and Causes of the Wealth of Nations (1776)

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