3. Rational Choice Theory
An economic principle that assumes that individuals always make prudent and logical decisions that provide them with the greatest benefit or satisfaction and that are in their highest self-interest. Most mainstream economic assumptions and theories are based on rational choice theory, and its application to social interaction takes the form of exchange theory.
Economics plays a huge role in human behavior. That is, people are often motivated by money and the possibility of making a profit, calculating the likely costs and benefits of any action before deciding what to do. This way of thinking is called rational choice theory.
Rational choice theory was pioneered by sociologist George Homas, who in 1961 laid the basic framework for exchange theory, which he grounded in assumptions drawn from behavioral psychology.
4. Economic policy
A government policy for maintaining economic growth and tax revenues
5. 'Fiscal Policy'
Government spending policies that influence macroeconomic conditions. Through fiscal policy, regulators attempt to improve unemployment rates, control inflation, stabilize business cycles and influence interest rates in an effort to control the economy. Fiscal policy is largely based on the ideas of British economist John Maynard Keynes (1883–1946), who believed governments could change economic performance by adjusting tax rates and government spending.
To illustrate how the government could try to use fiscal policy to affect the economy, consider an economy that’s experiencing a recession. The government might lower tax rates to try to fuel economic growth. If people are paying less in taxes, they have more money to spend or invest. Increased consumer spending or investment could improve economic growth. Regulators don’t want to see too great of a spending increase though, as this could increase inflation.
Another possibility is that the government might decide to increase its own spending – say, by building more highways....