Jump to ContentJump to Main Navigation
Business Cycle Theory$
Users without a subscription are not able to see the full content.

Lutz G. Arnold

Print publication date: 2002

Print ISBN-13: 9780199256815

Published to Oxford Scholarship Online: October 2011

DOI: 10.1093/acprof:oso/9780199256815.001.0001

Show Summary Details
Page of

PRINTED FROM OXFORD SCHOLARSHIP ONLINE (www.oxfordscholarship.com). (c) Copyright Oxford University Press, 2019. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 15 November 2019

New Classical Economics

New Classical Economics

(p.50) 4 New Classical Economics
Business Cycle Theory

Lutz G. Arnold

Oxford University Press

This chapter begins by examining the Lucas model (1973), the ‘down-to-earth’ (Phelps 1990:42) version of Lucas' (1972) pioneering article on Expectations and the Neutrality of Money. It then discusses some subsequent developments in new classical economics. It explains that new classical economics introduces rational expectations into macroeconomics. It notes that the rational expectations assumption is essential for policy effectiveness. It discusses that under rational expectations, wage setters take into account that the AD curve shifts outward. It clarifies that in order to achieve the target wage or employment level, they raise wages in such a way that the AS curve shifts to the left such that the intersection with the new AD curve occurs at the natural state of output.

Keywords:   Lucas model, down-to-earth, Neutrality of Money, new classical economics, rational expectations, macroeconomics

Oxford Scholarship Online requires a subscription or purchase to access the full text of books within the service. Public users can however freely search the site and view the abstracts and keywords for each book and chapter.

Please, subscribe or login to access full text content.

If you think you should have access to this title, please contact your librarian.

To troubleshoot, please check our FAQs , and if you can't find the answer there, please contact us .