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Neoclassical theory of economics has two main interpretations of its concept of rationality, internal cognitive consistency and the maximization of self-interest. Self-interest, unlike consistency, is normally an added characterization of an agent who is already formally characterized as choosing in accordance with some ranking. Nevertheless it is implicitly present in much of traditional economic theory. For example, in general equilibrium theory, in establishing the correspondence of equilibrium with Pareto optimality. Self-interest may also be added to formal consistency as a spice of "realism." It is often introduced, not in the formal axiomatization, but by an appeal to intellectual history. Even economist Adam Smith's conception of industrial capital class was based on accumulation of self-interest. A defense of self-interest today must confront present challenges and will take little comfort from a deep study of what Smith actually had written.

Both new-classical and Keynesian macroeconomists usually agree that the price level and real output tend to move in the same direction. By standing on this widely accepted fact the economist can see macroeconomics from an original angle, even though two schools of thought disagree on causes of this pro-cyclicality and on whether activist fiscal and monetary policies are justified. According to some new-classicals, real output and the price level tend to move in the same direction, because producers do not initially know whether an increase in prices they observe in their own market is relative and real, or only a nominal increase. By contrast, the traditional Keynesian theory assumes that, when an economy is depressed, there are prices or wages stuck at disequilibrium levels and thus involuntary unemployment. An increase in aggregate demand tends to correct these inefficiencies and thereby increases welfare as well as real output. There are bottlenecks and other limits to price stickiness, so the price level rises when real output increases.

The article provides a brief introduction to macroeconomics. Economists question the internal consistency of Keynesian models. In contrast, the neoclassical or rational expectations school maintains consistency with the principles of perfect competition and flexible prices. Nearly all economists are extraordinarily prejudiced in favor of models exhibiting rational. In apparent ignorance of the intellectual arguments of the neoclassical school, the economy persists in behaving pretty much as the modern Keynesian models predict. The article presents the role of imperfect information in the labor market and then goes on to solve for general equilibrium in the absence of government intervention. It examines the Keynesian-like behavior of this equilibrium. It also examines the impact on GNP, aggregate labor supply and welfare of balanced-budget government spending. In the absence of active fiscal policy, it is seen that Say's Law fails and the author demonstrate why there is a "fallacy of composition."

The article discusses stability implications of economists Alfred Marshall and Leon Walras's adjustment schemes. In the Keynesian macrosystem, the Marshallian ranking of price and quantity-adjustment speeds is reversed. Thus, in the shortest period, flow quantities are freely variable. However, only one or more prices are given and the admissible range of variation for the rest of prices is thereby limited. Researcher James Tobin has argued that one way to appreciate the importance of this change of dynamic structure is to analyze the stability implications of Marshallian and Walrasian adjustment processes. Tobin argues persuasively that Keynes' achievement was to show that, in a capitalist economy, market forces may be too weak to generate a lull-employment equilibrium. Tobin develops two simple macro models, one reflecting the Walras-Keynes-Phillips (W-K-P) adjustment relation and the other reflecting the Marshallian (M) adjustment relation. It is clear from Tobin's analysis that the speed of adjustment of price and quantity is not the only characteristic distinguishing the Marshallian and Walrasian approaches.

The economics of advertising is marked by the same emotional commitment to conflicting schools of thought that is usually associated with monetary theory and the economics of speculation. To all appearances, the choice of both the axioms used and data to be interpreted has been made in order to justify preexisting conclusions rather than to make an unbiased test between alternative theories. The controversies endure in large part because advertising still remains outside the core of accepted theory. Neither the standard Marshallian partial equilibrium analysis nor the Arrow-Debreu general equilibrium analysis even admits the existence of advertising. Two major explanations of advertising are widely held: one considers advertising as a set of psychological ploys which induce consumers to buy products or brands that they otherwise would not buy; the other treats advertising as a provision of information which allows consumers to make more discriminating choices within the framework of a fixed set of preferences.