The possibility that the financial system might be a source of instability leading to crises was frequently discussed in pre-Keynesian business cycle literature, which is reviewed briefly in the next section. The main focus of the chapter is the revival of interest in the financial instability hypothesis (FIH) in the 1970s and 1980s.

 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.

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