ECON 200 Lecture Notes - Lecture 17: New Keynesian Economics, Rational Expectations, Herbert Hoover
Document Summary
Very similar to monetarism: cycles come from as & ad instead. Keynes is not helpful when reading: drawing more from freedom. We haven"t converged on 1 school of thought. People haven"t quite rational expectations: due to cost of acquiring expectations. Prices adjust slower than new classical models (menu costs/ contracts) Rational expectation would have re-evaluations each day for productivity: new keynesian prices to sticky for that. Suppose firms expect to sell less because of a random shock or a surprise contraction of money supply. Workers will accept lower wages if everyone accepts lower wages. Accept lucas critique: if rule change behavior change. Avoid stabilization policies: people know what to expect. When laid off is when downturn occurs. So far implicit assumption that the politicians are competent and care about public. Understand lags in monetary & fiscal policy. Known as political business cycle: nixon administration. No tax payer money goes directly to the fed: less corruption of independence.
