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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.
Introducing the Foreign Trade Sector Most economies in the real world are open economies. They engage in trade with other economies. Goods and services are exported and import
I am trying to figure out how to calculate the eqilibrium level of income and the multiplier
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The AS-AD model with inflation When we remove assumption of constant prices to allow varying real wages. Resulting model was known as AS-AD model. Similarly we now remove the a
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How would the following influence the growth rates of theM1 and M2 money supply figures over time? a. an increase in the quantity of U.S. currency held overseas b. a shift of f
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