Journal.docx - ECON 1580 Introduction to Economics Learning Journal Although not explicitly mentioned in Chapter 20 John Maynard Keynes is considered a

Journal.docx - ECON 1580 Introduction to Economics Learning...

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ECON 1580 Introduction to Economics Learning Journal 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. According to (Gregory Mankiw, 2018), the New Keynesian Economics emerged out of the classic Keynesian theory. These modern macroeconomists disagreed with the classic Keynesian theory and set to establish principles that addresses these perceived limitations. For the New Keynesian economists are of the view that wages and prices are adjustable, a view which the classic Keynesians’ disagree on. The New Keynesian economists believe that market demand and supply can be cleared by price due to the adjustable nature of wages and price, and it can recover quickly. To the New Keynesian economists, fluctuation in the economy that are short-term are not tackled by the market clearing model. They are of the view that, prices and wages take time to adjust to short-term economic fluctuations. They are also of the view that, employment and production are affected by monetary polices in the short-term because price takes time to respond when there is a change in the supply of money (Gregory Mankiw, 2018). Meaning, consumers spend less when they have no money which inturn reduces the demand for goods. The classic Keynesian theorist are not in support of the above points because they think it does not address the problem of why prices move slowly (Gregory Mankiw, 2018). Reference In-text: (Gregory Mankiw, 2018) Gregory Mankiw, N. (2018). New Keynesian Economics - Econlib. Retrieved 16 December 2019, from [online]

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