25 Theories to Get You Started Supply and Demand

Permanent Income / Life Cycle Hypothesis the permanent income hypothesis states that individuals will spend money at a level that is consistent with their expected long-term average income. Under the theory, if economic policies result in increased income, it will not necessarily translate into increased consumer spending.

Rational Expectations is a concept and modeling technique that is used widely in macroeconomics. The theory posits that individuals base their decisions on three primary factors: their human rationality, the information available to them, and their past experiences.

Rational Choice Theory states that individuals use rational calculations to make rational choices and achieve outcomes that are aligned with their own personal objectives. These results are also associated with an individual’s best, self-interests. Using rational choice theory is expected to result in outcomes that provide people with the greatest benefit and satisfaction given the choices they have available.

Bear market

The principle of a bear market is simple enough. Essentially, it represents a negative or pessimistic outlook on a stock market’s performance, often with such markets falling into a downfall spiral, where prices continue to drop. As a result of a bear market, selling of stocks tends to increase. Additionally, investors expect, and may well receive, increased losses from their investments.

Bull market

A bull market represents a much more positive outlook on a stock market’s performance compared to a bear market. In a bull market, stock prices either have or are expected to increase.

Business cycle

The business cycle refers to the overall expansion and subsequent contraction of an economy over a period of time. As a result, the business cycle is part of the wider field of macroeconomic theory. You can find a definition of macroeconomics below.