![]() Other economists avoided the new classical and new Keynesian debate on short-term dynamics and developed the new growth theories of long-run economic growth. The new neoclassical synthesis combined elements of both new classical and new Keynesian macroeconomics into a consensus. New Keynesians adopted rational expectations and built models with microfoundations of sticky prices that suggested recessions could still be explained by demand factors because rigidities stop prices from falling to a market-clearing level, leaving a surplus of goods and labor. ![]() New Keynesians tried to address many of the criticisms leveled by Lucas and other new classical economists against Neo-Keynesians. Like early classical economic models, RBC models assumed that markets clear and that business cycles are driven by changes in technology and supply, not demand. The new classical school culminated in real business cycle theory (RBC).
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