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Essay / Research Paper Abstract
This 10 page paper looks at the New Classical theory of economics, what it is how it is developed and argues that this is a very valuable economic theory. The theory is compared to the New Keynesian approach and assessed for flaws as well as its' positive points. The bibliography cites 9 sources.
Page Count:
10 pages (~225 words per page)
File: TS14_TENewclassical.rtf
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Unformatted sample text from the term paper:
key components, such as the need to accept natural rate hypothesis, the adoption of the equilibrium approach to model construction, the acceptance of the concept that policy based on rules
is superior and a healthy measure of scepticism concerning the use of empirical evidence and relevance of macroeconomic concerns of rational bubbles phenomena (McCallum, 1989). Recent developments that look to
Keynesian ideas and are referred to as New Keynesian, are not necessarily in conflict with the new classical approach, but may also be seen as lacking. However, both of these
new approaches still have flaws, but we can argue new Classical Theory has many accretes and may be seen as the most appropriate with todays economies and has fewer weak
point that the alternatives. New classical theory emerged during the 1970s with the work of Robert Lucas, Thomas Sargent and Neil Wallace, and partially from the work of
John Muth who came before him (Katz, 1988). This can be seen to build on traditional classical theory. By looking at the foundations we are better placed to critique the
theory, so we will briefly look at classical theory. The classical school of thought is the original school of thought which developed in the eighteenth and ninetieth
centuries. The major thrust of this work is the way in which markets actually operate. Classical economists believe that if the markets are left to operate completely freely, with out
any delay to clearing, then the result would be a prosperous economy. The role of government should be the facilitation of the speedy clearing. This looked to supply side economics
can be seen as based on the theories of Free market, Says Law and Quantity Money Theory. Free market theory said that any economy left to its
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