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Fisher effect theory: The Fisher Effect is a theory innovated by economist Irving Fisher
which elaborates the connection between inflation and both real and nominal interest
rates. The Fisher Effect has been extended to the analysis of the money supply and
international currencies trading
Friedman’s theory of monetarism: Monetarism is a theory that says the cash supply
is that the most vital driver of economic process. Because the funds increase, people
demand more. Factories produce more, creating new jobs. Monetarists believe
monetary policy is simpler than economic policy (government spending and tax policy).
Stimulus spending are added to the cash supply, but it creates a deficit adding to a
country's sovereign debt, which will increase interest rates.
During the 20th century these theories were heavily followed all over UK for their
favourable effect on their economy.
Contemporary Economics in the 21st century
For more than 70 years, economics was stuck on GDP, or national output, as its
primary means of progress. That fixation had been used to justify massive inequalities
of income and wealth including unprecedented destruction of the living world. For the
twenty-first century, a far bigger goal was needed: meeting the human rights of each
person within the necessity of our world. Thus several new concepts were created to
modernise and improvise the theories we were using for ages. Among the huge number
of theories we will be focussing on four commonly used theories.
Vast differences have been noticed between the economic theories of 21 st and 20th
century. Several theories emerged due to the demand of the era’s specific
circumstances and some became loosely void due to social and economic changes.
However, 21st century business operation has become far more complex than the
previous century economists can even imagined. Some of the theories from the 20 th
century are still being used for their outstanding effectiveness such as “Fisher effect
theory” for evaluating economic growth in some specific areas. “Friedman’s theory” and
“Keynesian economic theories” has become outdated because of their fixated approach
on GDP which has become a false goal waiting to be ousted. Whereas, 21 st century
economy wants to make sure that no one falls short on life’s essentials such as food
and housing to healthcare, stable climate and fertile soils to healthy oceans and a
protective ozone layer. Basically, a balance in all aspects. Keeping that in mind,
traditional economic theory is an excellent approach towards economies like developing
countries due to its simple nature of activity. Traditional economies generate no
industrial pollution, while keeping their living environment clean. Traditional economies
only produce and take what they need, so there is no waste or inefficiencies involved in
producing the goods required to survive as a community. We can also consider 20 th
century “Fisher effect theory” for its fiscal policies as ensures better lifestyle for all the
class of people. For countries like China and Korea seems appropriate to follow
command economy as the government controls all the resources and decides what they
should produce. Market Economic Theory is approached all over the world these days
as it allows entrepreneurs and others to carry on their business on their own terms but
following government implied rules and regulations. Therefore, we can consider that
modern economic polices proves to be great for higher GDP and able to ensure
legitimate demand. These principles and patterns will allow new economic thinkers to
start creating economies that will enable everyone of us prosper as well as develop a
country’s economy.