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Reconstructing Economics in Light of the 2007--? Financial Crisis

  • Benjamin M. Friedman
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    The lessons learned from the recent financial crisis should significantly reshape the economics profession's thinking, including, importantly, what we teach our students. Five such lessons are that we live in a monetary economy and therefore aggregate demand and policies that affect aggregate demand are determinants of real economic outcomes; that what actually matters for this purpose is not money but the volume, availability, and price of credit; that the fact that most lending is done by financial institutions matters as well; that the prices set in our financial markets do not always exhibit the “rationality” economists normally claim for them; and that both frictions and the uneven impact of economic events prevent us from adapting to disturbances in the way textbook economics suggests.

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    File URL: http://hdl.handle.net/10.1080/00220485.2010.510397
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    Article provided by Taylor & Francis Journals in its journal The Journal of Economic Education.

    Volume (Year): 41 (2010)
    Issue (Month): 4 (September)
    Pages: 391-397

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    Handle: RePEc:taf:jeduce:v:41:y:2010:i:4:p:391-397
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