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The Four economic theories
Four economic theories are supply side economics, new classical economics, monetarism, and Keynesian economics:
Supply side economics
This macroeconomic theory emphasizes market forces and believes that economic growth can be fostered by lowering taxes, decreasing regulation, and allowing free trade. Supply-side fiscal policies are designed to increase aggregate supply, which can expand output and employment while lowering prices. For example, supply-siders believe that tax cuts will stimulate the economy and bring in additional tax revenues, which is the idea behind the Laffer Curve.
New classical economics
This school of thought in macroeconomics emphasizes the importance of microeconomic foundations, especially rational expectations. New classical economists believe that countries must liberate their markets, reform labor markets, privatize state owned industries, and encourage entrepreneurship to develop. They also believe that policymakers are ineffective because individual market participants can anticipate policy changes and act in advance to counteract them.
Monetarism
This fundamental macroeconomic theory focuses on the importance of the money supply as a main driver for economic growth. Monetarists believe that the money supply is a primary determinant of price levels and inflation, and that they can influence interest rates in the future by fighting inflation with the supply of money.
Keynesian economics
This theory relies heavily on government intervention, such as fiscal policy or monetary policy. Keynes advocated for increased government expenditures and lower taxes, and Keynesian fiscal policy is based on the prediction that increased aggregate demand through government spending will cause incomes to rise.
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