June, 2009

The Microeconomic Foundations of Macroeconomic Disorder: An Austrian Perspective on the Great Recession of 2008

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This working paper makes the case that the Austrian Business Cycle Theory is still relevant especially during this time of financial crisis. The Austrian explanations of the business cycle takes into account microeconomic foundations, which current standard macroeconomics makes little use of in explaining and understanding the dynamics of growth and business cycles. This paper argues that the alternative approach to understanding business cycles and economic growth espoused by the Austrian school of thought sheds a great deal of light on the current recession as well as suggesting ways to prevent future boom-bust cycles.