Neo-classical synthesis, Macroeconomics

Assignment Help:

Neo-classical synthesis is a synthesis of classical model and Keynesian model. In brief, it states that Keynesian model is correct in the short run whereas the classical analysis is correct in the long run. 

Let's consider a concrete instance. According to Keynesian model, an increase in G will increase Y and decrease unemployment. In the classical model, an increase in G would have no effect at all on Y and unemployment. In neo-classical synthesis, an increase in G will create a temporary increase in Y however Y will return to its original value after some time. 

To justify neo-classical synthesis, it's helpful to identify the problem with classical model in the short run and problem with the Keynesian model in the long run. As for classical model in the short run, we figured out that within this model, it's difficult to describe deep recessions with high involuntary unemployment. In the long run, it's more reasonable to believe that the economy can get out of the recession by itself. Problem with the Keynesian model in the long run, as we would see, is assumption of a stable Phillips curve.


Related Discussions:- Neo-classical synthesis

Protectionisms, definition, argument to protectionism and argument against ...

definition, argument to protectionism and argument against protectionisms

Help needed, what are the advantages and disadvantages of unemployment

what are the advantages and disadvantages of unemployment

Money market, suppose that a persons wealth is kshs. 50,000 and her yearly ...

suppose that a persons wealth is kshs. 50,000 and her yearly income is kshs. 60,000. suppose further that her money demand function is given by Md = y(0.35-i) where i= interest

Raising chickens requires several types of feed, Raising chickens requires ...

Raising chickens requires several types of feed, such as corn and soy meal. Consider a farm in the former Soviet Union. Try to describe how decisions on the number of chickens to b

Determine the problems there with consumer price index, Determine the Probl...

Determine the Problems evolved with Consumer Price Index To illustrate problems involved in calculating CPI we consider MP3 players. If you measure average price of MP3 players

Elucidate own small building company, You operate your own small building c...

You operate your own small building company and have decided to bid on a government contract to build a pedestrian walkway in a national park during the coming winter. The walkway

Keynesian fiscal policy, Assume the economy has a GDP of $11,500 billion.  ...

Assume the economy has a GDP of $11,500 billion.  The unemployment rate is at 7.3% and has been slowly rising for the last 6 months.  Inflation was at 2.3% one year ago but has sin

What are the costs of economic growth, What are the costs of economic growt...

What are the costs of economic growth? Economic growth can result also into: • Increases within pollution noise and congestion • Unnecessary depletion of non-renewable r

Find out the equilibrium level of income, Suppose you have the following in...

Suppose you have the following information about a closed economy: C = 50 + 0.80 (Y-T) I = 200 G = 100 a) Find out the equilibrium level of income. b) Suppose G in

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd