The Neoclassical Perspective (Economics)

Recall cards on the neoclassical perspective in macroeconomics. The two building blocks of neoclassical analysis: in the long run potential GDP determines real output regardless of aggregate demand, and wages and prices, sticky in the short run, are flexible over time so the economy adjusts back toward potential GDP. Rational versus adaptive expectations and how fast the economy returns to potential. Policy implications: a vertical long-run aggregate supply curve and a vertical long-run Phillips curve (no permanent inflation-unemployment tradeoff), a focus on the natural rate of unemployment and long-term productivity growth. Balancing the Keynesian short-run model against the neoclassical long-run model, and what each school explains best.