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Economic Policy - the Forth Dimension of the Economic Theory

Olkhov, Victor (2022): Economic Policy - the Forth Dimension of the Economic Theory.

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Abstract

We consider mandatory components of the economic theory: two scales and four dimensions composed by collective agent’s economic variables, transactions and expectations and by the economic policy. We consider all economic variables, transactions and expectations on an equal footing and don’t emphasize any principal. Time scale Δ defines time averaging of economic parameters. “Space” scale 1 defines rate of aggregation of the economic agents distributed by their numeric continuous risk grades in the economic domain. Different scales (l, Δ) produce theoretical approximations of the economy with a different accuracy. Economic policy may perturb agent’s expectations and that cause perturbations of transactions and economic variables. These perturbations may generate small economic waves that can propagate inside and along borders of the economic domain. Amplifications of economic wave amplitudes by positive feedback can significantly penetrate economic sustainability. Agent’s economic activity induces change of agent’s risk grades and that results in collective flows of economic variables, transactions and expectations in the economic domain. These flows cause fluctuations of macroeconomic variables usually called as business cycles. Economic policy may smooth business cycle fluctuations but cannot stop agent’s collective economic flows in the economic domain. Description of uncertainty - volatility of the economic variables, transactions, expectations and the economic policy outcomes requires development of the second-order economic theory that models relations between sums of squares of agent’s variables, transactions and expectations. We point out the theoretical frame and the direction for theoretical approximations of the real economy but this remarkable activity has no final result.

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