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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.
using a graph of the classical labour market illustrste the effects of real wage existing in the market lower than the equilibrium real wage
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This economics of scale exist for all of the following reasons except: a. bureaucratic inefficiencies b. management problems c. failures in information flows d. firm size is to
A new industry develops, and our government wants to protect it from foreign competition. Which one of the following arguments would appropriately describe this type of protection?
factor for long run trend of term of trade
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The price level is the monetary value of a good or service.
Sims (1980) introduced an exciting and ground-breaking new framework which would prove to be extremely insightful for macroeconomic analysis. This is known as vector autoregression
Q. Show the components of GDP? The circular flow - simple version We have defined GDP, gross domestic product, as the market value of all finished service and goods produced
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