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The neoclassical synthesis is a macroeconomic theory that emerged in the mid-20th century, combining the ideas of neoclassical economics with Keynesian economics. The synthesis was an attempt to reconcile the apparent differences between the two schools of thought and create a more comprehensive theory of macroeconomics.
Therefore, they also accept the monetarist and new Keynesian view that monetary policy can have a considerable effect in the short run. [18] The new classical macroeconomics contributed the rational expectations hypothesis and the idea of intertemporal optimisation to new Keynesian economics and the new neoclassical synthesis. [12]
Post-Keynesian economists, on the other hand, reject the neoclassical synthesis and, in general, neoclassical economics applied to the macroeconomy. Post-Keynesian economics is a heterodox school that holds that both neo-Keynesian economics and New Keynesian economics are incorrect, and a misinterpretation of Keynes's ideas. The post-Keynesian ...
The attempt to combine neo-classical microeconomics and Keynesian macroeconomics would lead to the neoclassical synthesis [30] which was the dominant paradigm of economic reasoning in English-speaking countries from the 1950s till the 1970s. Hicks and Samuelson were for example instrumental in mainstreaming Keynesian economics.
New classical economics had pointed out the inherent contradiction of the neoclassical synthesis: Walrasian microeconomics with market clearing and general equilibrium could not lead to Keynesian macroeconomics where markets failed to clear.
The term "mainstream economics" came into use in the late 20th century. It appeared in 2001 edition of the textbook Economics by Samuelson and Nordhaus on the inside back cover in the "Family Tree of Economics", which depicts arrows into "Modern Mainstream Economics" from Keynes (1936) and neoclassical economics (1860–1910). [14]
Keynes's interpretation is rejected by many economists as a misinterpretation or caricature of Say's law — see Say's law: Keynes vs. Say — and the advocacy of the phrase "supply creates its own demand" is today most associated with supply-side economics, which retorts that "Keynes turned Say on his head and instead stated that 'demand ...
[78] [87] Friedman, however, began to emerge as a formidable critic of Keynesian economics from the mid-1950s, and especially after his 1963 publication of A Monetary History of the United States. On the practical side of economic life, " big government " had appeared to be firmly entrenched in the 1950s, but the balance began to shift towards ...