ECON 1580, Learning Journal Unit 5 -.docx - Although not explicitly mentioned in Chapter 20 John Maynard Keynes is considered a foundational source in

ECON 1580, Learning Journal Unit 5 -.docx - Although not...

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Although not explicitly mentioned in Chapter 20, John Maynard Keynes is considered a foundational source in the understanding of macroeconomics. After performing research outside the textbook, please explain in three well-structured paragraphs the basic principles of the New Keynesian Economics and how it addresses perceived limitations to classic Keynesian theory. The new "Keynesian Economics is a modern macroeconomic school of thought that evolved from classical Keynesian economics"[Ken181]. One major disagreement between classic Keynesian theory and new Keynesian economics is the assumption of how quickly wages and prices adjust. New classical economists believe wages and prices are flexible, and that prices can "clear" the market demand and supply because wages and prices are flexible, and they can adjust quickly. However, the new Keynesian economists think that market-clearing models don't address the short-term economic fluctuations. Furthermore, "the New Keynesian economists advocates

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