Macroeconomic Equilibrium Due to Producer's Behaviour

Authors:

Prabhav Sharma

Abstract

Inflation or economic instability at macroeconomic level is generally interlinked by rise in growth and income but can be affected by induvial level through decision making process of producer. The concept of macroeconomics which includes composition various micro economic unit at induvial level affecting an economy as a whole. Similar to it, inflation affected by monetary or fiscal policy at aggregate level can occur due to decision of producer based on his analysis of internal and external factors.

Classification of demand as expected and unexpected on basis of assumption of transitivity suggested by Adam Smith in 1776 helps in examining impact of decision and course of action taken by producer during surge of demand. On, other due to behavioral nature of economics the risk as feeling theory suggested by three people (George Loewenstein, Elke U. Weber, and Christopher K. Hsee) within psychological bulletin through which sentimental investment theory is derived. Description of assumption of transitivity may contradict with sentimental investment theory in this paper due to being derived of rational choice theory. But still both the theories have equivalent role in understanding inflation due to being analyzed on similar assumption that choice and preference being derived from human emotions, emotional decision-making of a person will emphasize on higher order of preference