New Classical Macroeconomics

Discipline: Economics

Developed by American economists Robert Lucas (1937- ) and THOMAS SARGENT (1943- ), and British economists PATRICK MINFORD (1943- ) and MICHAEL BEENSTOCK (1946- ).

New classical macroeconomists argue that the economy will settle at a natural rate of unemployment and attempts to alter this equilibrium state will be counteracted by economic agents.

When the Keynesian dominance of macroeconomics ended in the early 1970s, several new schools of economic thought arose.

There are three main facets to the new classical macroceconomics:

(1) the real economic decisions of agents (for example, saving, consumption, or investment) are based on real not nominal or monetary factors;
(2) agents are held to be continuously in equilibrium;
(3) agents hold on to their rational expectations.

The rational expectations theory and the NAIRU (non-accelerating inflation rate of unemployment) are important propositions.

Also see: keynesian economics, laissez-faire

Source:
K D Hoover, The New Classical Macroeconomics (Oxford, 1988)

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