Economic Theory

Economic theory is about the fundamentals of economics and how they apply to current events. Learning about economic theory may help you better understand the U.S. economy.

Frequently Asked Questions

  • What is an economic theory?

    An economic theory is used to explain and predict the working of an economy to help drive changes to economic policy and behaviors. Economic theories are based on models developed by economists looking to explain recurring patterns and relationships. These theories connect different economic variables to one another to show how they’re related.

  • What is Keynesian economic theory?

    Keynesian economics is a theory that says the government should increase demand to boost growth. Keynesians believe consumer demand is the primary driving force in an economy. Its main tools are government spending on infrastructure, unemployment benefits, and education. A drawback is that Keynesian policies could increase inflation.

  • What is the economic theory of mercantilism?

    Mercantilism is an economic theory that advocates government regulation of international trade to generate wealth and strengthen national power. Merchants and the government work together to reduce the trade deficit and create a surplus. Mercantilism funds corporate, military, and national growth and advocates trade policies that protect domestic industries.

  • What is the economic theory behind socialism?

    The economic theory behind socialism—an economic system in which citizens share ownership of the various factors of production—is community or solidarity. Socialists believe people should value the freedom and well-being of others as much as their own, and that the economic system should support that goal.

  • What is economic development theory?

    Economic development theory aims to answer the question “why are some countries developed, but others less developed?” It focuses on the financial, social, and economic conditions in developing countries, such as health, education, and employment, to better understand how they could be improved.

  • What was Karl Marx's economic theory?

    Karl Marx’s economic theory critiques capitalism and how it is unjust because there is a struggle between social classes when it comes to labor, production, and economic development. His theory suggests that communism may be a more just economic system.

Key Terms

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Nobel Prize-winning economist Milton Friedman attends a 1986 Beverly Hills charity dinner in his honor. Duringthe 1980s, Friedman's monetarist policies ruled.
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