"Robert E. Hall, Michael Woodford Win 2026 Economics Nobel"
Aggregate demand
total spending on goods and services in an economy at a given time
Stabilisation policy
use of fiscal and monetary tools to reduce ups and downs in growth and jobs
Macroeconomics became a separate field of study after the Great Depression (1929-39). During this time, output and jobs fell sharply across Europe and North America. In the United States, the unemployment rate rose from about 3% to 25% within a few years. Before this, most economists believed free markets fix themselves. They thought unemployment could not stay high for long. John Maynard Keynes, in his 1936 book The General Theory of Employment, Interest and Money, made a new argument. He said that total spending in an economy, called aggregate demand, does not always match what the economy can produce. When demand falls short, governments and central banks can raise spending. They can also cut interest rates to help. This became the base of stabilisation policy. Stabilisation policy uses fiscal and monetary tools to smooth out ups and downs in growth and jobs.
One popular idea that grew out of early Keynesian thinking was the Phillips Curve. It suggested an inverse relationship between inflation and unemployment. Lower inflation meant higher unemployment. Higher inflation meant lower unemployment. By the 1960s, many governments believed a little more inflation could permanently buy less unemployment. This broke down badly during the oil-price shocks of the 1970s. These shocks brought stagflation: slow growth, high unemployment and high inflation together. In 1976, economist Robert Lucas explained why. He showed that people change their behaviour when they expect a policy, which alters the very relationships policymakers relied on. This weakens the policy's effect. This is called the Lucas critique. It pushed economists to build models starting from how individual households and firms actually decide to spend, save and set prices. They stopped relying on fixed statistical patterns from the past.
Inflation occurs when the general level of prices rises across an economy. It can result from multiple causes. These include excess money supply, reduced output, or increased demand. The money multiplier measures how much the money supply expands from an initial injection of reserves. It is inversely related to reserve requirements. It is directly related to banks' willingness to lend.
The 2026 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel (commonly called the Economics Nobel) was given jointly to Robert E. Hall of Stanford University and Michael Woodford of Columbia University. Their shared contribution was building microeconomic foundations for macroeconomic stabilisation policy. This means they explained big-picture economic behaviour by starting from how individual people and firms actually decide. They did not rely on fixed statistical rules.
Hall's key insight responded directly to the Lucas critique. He showed that household consumption depends mainly on what people expect about their future income. It does not depend on how much they spent in the past. This is known as the random walk hypothesis: consumption changes only with new, unpredictable information about future income. …
With reference to Indian economy, demand-pull inflation can be caused/increased by which of the following?
1.Expansionary policies
2.Fiscal stimulus
3.Inflation-indexing wages
4.Higher purchasing power
5.Rising interest rate
Select the correct answer using the code given below.
Besides the welfare schemes, India needs deft management of inflation and unemployment to serve the poor and the underprivileged sections of the society. Discuss.
The 2026 Sveriges Riksbank Prize in Economic Sciences (Economics Nobel) was awarded jointly to which of the following economists?
Consider the following statements regarding the Phillips Curve:
1.It suggests an inverse relationship between inflation and unemployment.
2.It was empirically based on wage and unemployment data from the United Kingdom.
3.It remained a stable policy trade-off throughout the 1970s oil shocks.
Which of the statements given above is/are correct?
The 'Lucas critique' in macroeconomics, associated with economist Robert Lucas, primarily argues that:
John Maynard Keynes's 1936 work, which founded modern macroeconomics, argued primarily that:
Which of the following statements about the 'random walk hypothesis' of consumption, proposed by Robert E. Hall, is correct?
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