What Are The Different Economic Models?

• Models are the systems people use to think about complicated things, like economics. There are three main economic models: Monetarist, Keynesian and Austrian. Keynesians subscribe to John Maynard Keynes' demand-side theory that central planners can effectively control recessions by injecting new money into the economy. Monetarists, also know as the Chicago School, believe inflation of the money supply causes rising prices. Monetarists promote a more limited increase in the money supply compared to Keynesians. The Austrian economic model demands zero inflation and sees only destructive purposes with an increase in money supply. Austrians view central planning as hazardous to humans.
  
  

What Are Economic Bubbles?

• Economic bubbles occur when the price of a particular segment of the economy rises to artificially high levels. This is usually the result of government subsidies and unequal taxation levels. Bubbles can also occur in entire currencies, as in the case of the U.S. dollar, which values everything with artificially high prices due to the flood of new money pouring in from the Federal Reserve.
  
  

What is the Subprime Mortgage Crisis?

• Americans purchased houses at interest rates as low as 1.5 percent with hopes that housing prices would continue to rise as they had been for decades. In addition, consumers with low credit scores were encouraged to buy houses by politicians and mortgage companies. However, housing prices stopped growing and interest rates went up, causing mortgage payments to skyrocket. This forced many consumers to default on their mortgages. The mortgage companies sold their mortgage debts to banks, causing many banks to go bankrupt along with mortgage companies.
  
  

What is the Role of the Federal Reserve?

• The Federal Reserve is a coalition of large private banks working with the blessing of the United States government, which appoints its managers. Constructed in 1913 with the passage of the Federal Reserve Act, the Federal Reserve has the ability to inflate the money supply by printing additional money. The Federal Reserve was ostensibly created to smooth out the unpredictable business cycles in the economy. However, critics such as congressman Ron Paul have pointed out that the Federal Reserve's role in practice has been to devalue money as a hidden form of taxation, allowing politicians to spend money without restraint .