Information about New Classical Economics
New classical macroeconomics emerged as a school in macroeconomics during the 1970s. As opposed to Keynesian macroeconomics, it builds its analysis on an entirely neoclassical framework. Specifically, new classical macroeconomics (NCM) emphasises the importance of rigorous foundations, in which the macroeconomic model is built in analogy to the actions of individual agents, whose behaviour is modelled by microeconomics. New Keynesian economics was developed partly in response to NCM – it strives to provide microfoundations for Keynesian economic analysis.
Several assumptions are common to most New Classical models. Primarily, all agents are assumed to be rational (utility-maximising) and possess rational expectations. At any one time, the macroeconomy is assumed to have a unique equilibrium at full employment or potential output and this equilibrium is assumed to always have been achieved via price and wage adjustment (market clearing).
New classical economics has also pioneered the use of representative agent models. Such models have recently received severe neoclassical criticism, pointing to the clear disjuncture between microeconomic behavior and macroeconomic results, as indicated by Kirman (1992), and the fallacy of composition. In some ways, this critique is akin to the Cambridge capital controversy, which discredited the neoclassical aggregate production function.
The most famous New Classical model is that of Real Business Cycles, developed by Robert Lucas, Jr., Finn E. Kydland, and Edward C. Prescott, building upon the ideas of, among others, John Muth.
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Real Business Cycle Theory (or RBC Theory) is a macroeconomic school of thought that holds that the business cycle is caused by random fluctuations in productivity.
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Several assumptions are common to most New Classical models. Primarily, all agents are assumed to be rational (utility-maximising) and possess rational expectations. At any one time, the macroeconomy is assumed to have a unique equilibrium at full employment or potential output and this equilibrium is assumed to always have been achieved via price and wage adjustment (market clearing).
New classical economics has also pioneered the use of representative agent models. Such models have recently received severe neoclassical criticism, pointing to the clear disjuncture between microeconomic behavior and macroeconomic results, as indicated by Kirman (1992), and the fallacy of composition. In some ways, this critique is akin to the Cambridge capital controversy, which discredited the neoclassical aggregate production function.
The most famous New Classical model is that of Real Business Cycles, developed by Robert Lucas, Jr., Finn E. Kydland, and Edward C. Prescott, building upon the ideas of, among others, John Muth.
External links
- Robert King's article New Classical Macroeconomics from the Concise Encyclopedia of Economics at the Library of Economics and Liberty.
References
- Alan P. Kirman, "Whom or What does the Representative Individual Represent?" Journal of Economic Perspectives 6(2), Spring 1992: 117-136.
Macroeconomics is a branch of economics that deals with the performance, structure, and behavior of a national economy as a whole.[1] Macroeconomists seek to understand the determinants of aggregate trends in an economy with particular focus on national income,
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Keynesian economics (pronounced "kainzian", IPA /ˈkeɪnzjən/), also called Keynesianism, or Keynesian Theory
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Neoclassical economics refers to a general approach in economics focusing on the determination of prices, outputs, and income distributions in markets through supply and demand.
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A model in macroeconomics is a logical, mathematical, and/or computational framework designed to describe the operation of a national or regional economy, and especially the dynamics of aggregate quantities such as the total amount of goods and services produced, total income
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Microeconomics (or price theory) is a branch of economics that studies how individuals, households, and firms make decisions to allocate limited resources,[1] typically in markets where goods or services are being bought and sold.
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In economics, the term microfoundations refers to the microeconomic analysis of the behavior of individual agents such as households or firms that underpins a macroeconomic theory (Barro, 1993, Glossary, p. 594).
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Rationality as a term is related to the idea of reason, a word which following Webster's may be derived as much from older terms referring to thinking itself as from giving an account or an explanation. This lends the term a dual aspect.
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Rational expectations is a theory in economics originally proposed by John F. Muth (1961) and later developed by Robert E. Lucas Jr. It is used to model how economic agents forecast future events.
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economic equilibrium is simply a state of the world where economic forces are balanced and in the absence of external influences the (equilibrium) values of economic variables will not change.
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This article or section may be confusing or unclear for some readers.
Please [improve the article] or discuss this issue on the talk page. This article has been tagged since August 2007.
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Please [improve the article] or discuss this issue on the talk page. This article has been tagged since August 2007.
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In economics, potential output (also referred to as "natural gross domestic product") refers to the highest level of real Gross Domestic Product output that can be sustained over the long term. The existence of a limit is due to natural and institutional constraints.
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The notion of a representative agent is a hypothetical construct in economics.
Its origins can be traced back to the late 19th century. Francis Edgeworth (1881) used the term "representative particular", while Alfred Marshall (1890) introduced a "representative firm" in his
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Its origins can be traced back to the late 19th century. Francis Edgeworth (1881) used the term "representative particular", while Alfred Marshall (1890) introduced a "representative firm" in his
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A fallacy of composition arises when one infers that something is true of the whole from the fact that it is true of some (or even every) part of the whole.
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The Cambridge capital controversy refers to a 1960s debate in economics concerning the nature and role of capital goods (or means of production). The name arises because of the location of the those most involved in the controversy: the debate was largely between economists such as
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In microeconomics, a production function asserts that the maximum output of a technologically-determined production process is a mathematical production of input factors of production.
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- See also:
Real Business Cycle Theory (or RBC Theory) is a macroeconomic school of thought that holds that the business cycle is caused by random fluctuations in productivity.
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Robert Lucas, Jr.
Born September 15 1937
Yakima, Washington
Residence U.S.
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Born September 15 1937
Yakima, Washington
Residence U.S.
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Finn E. Kydland
Photo: White House, 2004
Born 1943
Ålgård
Residence U.S.
Nationality Norwegian
Field Economics
Institutions Carnegie Mellon University
UC Santa Barbara
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Photo: White House, 2004
Born 1943
Ålgård
Residence U.S.
Nationality Norwegian
Field Economics
Institutions Carnegie Mellon University
UC Santa Barbara
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Edward C. Prescott
Born November 26 1940
Glens Falls, New York
Residence U.S.
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Born November 26 1940
Glens Falls, New York
Residence U.S.
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John F. Muth (1930 – October 23 2005 in Key West, Florida) was an American economist. He is known as "the father of the rational expectations revolution in economics", primarily due to his article "Rational Expectations and the Theory of Price Movements" from 1961.
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Macroeconomics is a branch of economics that deals with the performance, structure, and behavior of a national economy as a whole.[1] Macroeconomists seek to understand the determinants of aggregate trends in an economy with particular focus on national income,
..... Click the link for more information.
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Keynesian economics (pronounced "kainzian", IPA /ˈkeɪnzjən/), also called Keynesianism, or Keynesian Theory
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Monetarism is a set of views concerning the determination of national income and monetary economics. It focuses on the supply of and demand for money as the primary means by which economic activity is regulated.
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New classical macroeconomics emerged as a school in macroeconomics during the 1970s. As opposed to Keynesian macroeconomics, it builds its analysis on an entirely neoclassical framework.
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IS-LM model is nearly as influential as Keynes' original analysis in determining actual policy and economics education. It relates aggregate demand and employment to three exogenous quantities, i.e.
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Libertarianism
Schools of thought
Agorism
Anarcho-capitalism
Geolibertarianism
Green libertarianism
Right-libertarianism
Left-libertarianism
Minarchism
Neolibertarianism
Paleolibertarianism
Progressive libertarianism
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Schools of thought
Agorism
Anarcho-capitalism
Geolibertarianism
Green libertarianism
Right-libertarianism
Left-libertarianism
Minarchism
Neolibertarianism
Paleolibertarianism
Progressive libertarianism
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Supply-side economics is a school of macroeconomic thought that argues that economic growth can be most effectively created using incentives for people to produce (supply) goods and services, such as adjusting income tax and capital gains tax rates.
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Post Keynesian economics[1] is a school of thought which is based on the ideas of John Maynard Keynes. It differs from the interpretation of Keynes' ideas offered by mainstream Keynesian economics, such as the new Keynesian economics, emphasising in particular:
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