Todays Realities and Yesterdays Models Essay - 1156 Words

Todays Realities and Yesterdays Models Todays realities do not necessarily fit yesterdays models. In a universe where shifting paradigms are the norm, scientists are in continued search to establish cause and effect relationships between events that can be modeled. We see behaviorists scurrying for specific reasons as to why two youths could commit such heinous acts in Colorado. Their existing models could not predict such atrocity. Meteorologists and environmentalists are developing an explanation for global warming. What new factors will explain the condition? Will updated models accurately predict future trends? Economists are not exempt from this process. In todays world, where markets are defying what was previously†¦show more content†¦Phillips. Phillips theorized that high demand drives higher inflation and the growth of real output and corresponding lower unemployment rates.(McConnell and Bure, pg. 339) The viability of these models was challenged with the events of the 1970s and 1980s. Specifical ly, we began to see the simultaneous co-existence of both rising unemployment and inflation that was not indicated in either Keynes or Phillips models. Stagflation was the word used to describe this new phenomenon in which the economy was impacted by high inflation rates and high unemployment. The reality of the current events do not fit this model. The theories and terms used in the past modeled the times but none serve as a guide to describe todays reality. Unemployment has been falling for the past several years, and last month dipped to 4.2 percent, its lowest level in nearly three decades and well below any mainstream estimate of the natural unemployment rate. Economic growth, while slowing somewhat, remains robust. Yet, the predicted inflation is nowhere to be found.(Stevenson, April 11,1999) We are in the longest peacetime expansion in American history. We continue to move into uncharted water(Thurow). The growth rate for 1998 was 3.8 percent, the third consecutive year the economy has expanded at nearly 4 percent. Previous economic theory heldShow MoreRelatedMonte Carlo Simulation Analysis And Decision1698 Words   |  7 Pagesof an asset, such as a stock is: Today’s Stock Price= Yesterday’s Stock Price x er r=periodic daily return, the rate that the asset increased or decreased that day. Because the rate of return on an asset is a random number, to model the movement to determine possible future values, a formula is needed that models random movements. 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