Exploring General Equilibrium

This text presents an assessment of general equilibrium theory and what that theory reveals about business cycles, growth and labour economics. The general equilibrium approach, the author asserts, can be used to explain most of the economy's behaviour. It can explain business cycles and growth without using sticky prices, irrationality, economies of scale, or imperfect competition. It can explain the volatility of consumption, output, sales, investment and inventories with axiomatic utility and constant returns-to-scale production. It can explain temporary layoffs, job changes with and without intervening unemployment and the behaviour of vacancies. It can explain lower wages in part-time jobs, wages that increase rapidly with time on the job and the forces that cause migration from poor to rich countries. Although the general equilibrium approach can't be tested in conventional ways, it can be used to generate examples that explain stylized facts - generalized observations from the real world - that have preoccupied macroeconomists for the last decade. The author contrasts his interpretation of these facts with conventional interpretations.