Expectations in Economic Theory

This book deals with economic theory, not methodology. It does employ certain methodological resolutions. These resolutions and the limitations they impose on the nature and the scope of the analysis are reviewed. The fi rst resolution concerns what kind of a theory is to be discussed. The word theory may mean many things; it may mean a hypothesis put forward as an explanation of something, an idea, or a notion. In a normative sense it may mean a recommendation, a rule, or principle to be followed. In science it usually means a system of hypotheses to be accepted as an explanation of certain facts, a set of general laws, and principles. It is also used to distinguish the general principles and methods of a subject from the practice of it.