《初级宏观经济学》（英文版）Chapter 14 Newclassical Theory

9798900 Chapter 14 New classical Theories 复且学经济学院

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Introduction to new classical Theories R. lucas Supply Function Rational Expectations and R.lucas Criterion Policy Implications Comparisons between New Classical and Keynesian Theories 复且学经济学院

Introduction to New Classical Theories v R.lucas Supply Function v Rational Expectations and R.lucas Criterion v Policy Implications v Comparisons between New Classical and Keynesian Theories

14.1 R.lucas Supply Function Origin of New Classical Theories o Since 1980s, Keynesianism has been animadvert by neoclassicism macroeconomIcS OTwo leaders of neoc lassicism macroeconomics are rboert lucas Chicago university) and T.J. Saygent( Minnesota university, whose books named rational expectations and econometrics practice include radical contribute to new classical macroeconomics ONew classical macroeconomics began with R. lucas magnum opus Expectations and the Neutrality of Money", the paper “ Understanding business cycles”in1977. 复且学经济学院

14.1 R.lucas Supply Function vOrigin of New Classical Theories ¤Since 1980s, Keynesianism has been animadvert by neoclassicism macroeconomics ¤Two leaders of neoclassicism macroeconomics are Rboert Lucas (Chicago university) and T·J·Saygent( Minnesota university,whose books named “rational expectations and econometrics practice” include radical contribute to new classical macroeconomics. ¤New classical macroeconomics began with R.lucas’ magnum opus “Expectations and the Neutrality of Money” , the paper “Understanding business cycles” in 1977

14.1 R.lucas Supply Function Market foundation of New Classical theories O New classicism macroeconomics explains supply behaviors from the viewpoint of perfect information cost, and draw the conclusions about unemployment and flation from changes of microcosmic corporations O New classicism macroeconomics is based on Walras equilibrium with the character of market clearing, and emphasize drawing macroeconomics conclusions from the point that microcosmic behaviors pursue maximum of the object functions o New classicism macroeconomics inherit traditions of neoclassicism. and after reviewing the monetary theories and policies in the same way of thinking over problems, it conquered drawbacks that monetarism can not explain recession and employment effectively, so that it has set up a set of macroeconomics theory totally different from Keynesianism 复且学经济学院

14.1 R.lucas Supply Function vMarket foundation of New Classical Theories ¤New classicism macroeconomics explains supply behaviors from the viewpoint of perfect information cost, and draw the conclusions about unemployment and inflation from changes of microcosmic corporations ¤New classicism macroeconomics is based on Walras equilibrium with the character of market clearing, and emphasize drawing macroeconomics conclusions from the point that microcosmic behaviors pursue maximum of the object functions. ¤New classicism macroeconomics inherit traditions of neoclassicism, and after reviewing the monetary theories and policies in the same way of thinking over problems, it conquered drawbacks that monetarism can not explain recession and employment effectively, so that it has set up a set of macroeconomics theory totally different from Keynesianism

14.1 R.lubcas Supply Function Market foundation of New Classical Theory O New Classical Theory do not only explain reasons of unemployment and recession and the drawbacks of these scenes, so that is has set up a set of macroeconomics theory completely different from Keynesianism ONew Classical Theory emphasized the importance"information"in economical activities. which has the same belief as monetarism who believe market itself has power to ensure stable economical operations, on the other hand, it believes that basic economic unit can predict the future economic environment with all possible information, and then they make decisions. This so called"rational prediction Characters of New Classical Theory is pay attention to microeconomic foundation of theoretical models so their theoretical models all accord with basic conceptions of classical economics such as"market clearing" and Walras's Law' 复济院

14.1 R.lubcas Supply Function vMarket foundation of New Classical Theory ¤New Classical Theory do not only explain reasons of unemployment and recession and the drawbacks of these scenes, so that is has set up a set of macroeconomics theory completely different from Keynesianism. ¤New Classical Theory emphasized the importance “information” in economical activities, which has the same belief as monetarism who believe market itself has power to ensure stable economical operations, on the other hand, it believes that basic economic unit can predict the future economic environment with all possible information, and then they make decisions. This so called” rational prediction”. Characters of New Classical Theory is pay attention to microeconomic foundation of theoretical models, so their theoretical models all accord with basic conceptions of classical economics such as “market clearing” and “Walras’s Law

14.1 R.lucas Supply Function P AS Summation of supply of different markets in Microeconomic As Curve of aggregate supply in Macroeconomics, while sumn demands of different is AD Curve of aggregate demand and the cro The two curves is equilibrium point of national economy e AD Y 复且学经济学院

14.1 R.lucas Supply Function Y AD AS Summation of supply of different markets in Microeconomics, is AS Curve of aggregate supply in Macroeconomics, while summation of demands of different is AD Curve of aggregate demand. And the crossed point of The two curves is equilibrium point of national economy. P Y* P e

14.1 R.lucas Supply Function R.lucas Supply Function O Explanation One: Output and prices are determined by both supply and demand, and the corresponding P and Y of point e are price and output O Explanation TWO: When supply and demand are already given in each market, there must be a price P which ensures that supply of one market can satisfy its demand. This is the concept of market clearing. In fact, if economy is constituted by n different markets, and only the previous n-1 market can realize equilibrium of supply and demand, the supply and demand of last market will realize equilibrium. And this is the concept of Walras's Laws 复济院

14.1 R.lucas Supply Function v R.lucas Supply Function ¤Explanation One：Output and prices are determined by both supply and demand, and the corresponding P and Y* of point e are price and output. ¤Explanation Two：When supply and demand are already given in each market, there must be a price P which ensures that supply of one market can satisfy its demand. This is the concept of market clearing. In fact, if economy is constituted by n different markets, and only the previous n-1 market can realize equilibrium of supply and demand, the supply and demand of last market will realize equilibrium. And this is the concept of Walras’s Laws

14.1 R.lucas Supply Function R. lucas Supply Function o If we presume that gross supply of Whole economy is constituted by on the same corporations, we only need to choose one corporation to research the supply curve, and then we make results timed n to get Aggregate Supply of whole economy. 复且学经济学院

14.1 R.lucas Supply Function vR.lucas Supply Function ¤ If we presume that gross supply of whole economy is constituted by on the same corporations , we only need to choose one corporation to research the supply curve, and then we make results timed N to get Aggregate Supply of whole economy

14.1 R.lucas Supply Function r is the potent or normal S output of representative corporation, if it believes price of r' is bigger than P, he will hold beliefs that expansion of producing can bring profit, so r will increase to y P=P If potent output of the whole economy is Y, the optimal output for Corporation /is YN, Y And then price of this corporation is presumed pi, and once we distract one microcosmic corporation from the whole supply, we will find out that market is actually decentralized Y 复济院

14.1 R.lucas Supply Function Si If potent output of the whole economy is Y* , the optimal output for Corporation I is Y*/N,(Y* i). And then price of this corporation is presumed Pi，and once we distract one microcosmic corporation from the whole supply, we will find out that market is actually decentralized Yi P P’’ i Yi ’’ Pi=P Y* i P’ i Y* is the potent or normal output of representative corporation，if it believes price of Y’ is bigger than P , he will hold beliefs that expansion of producing can bring profit, so Y*I will increase to Y’i。 Yi ’

14.1 R.lucas Supply Function R.lucas Supply Function Y=h(p-p)+Y P-P=0 Y=Y For a typical and representative corporation, when price of his products is exactly equal to all round price, his output is exactly equal to his optimal output. h represents reaction to difference between changing range of some prices and aggregate prices, h>0 means a curve with positive slope 复济院

14.1 R.lucas Supply Function vR.lucas Supply Function For a typical and representative corporation, when price of his products is exactly equal to all round price, his output is exactly equal to his optimal output. h represents reaction to difference between changing range of some prices and aggregate prices, h>0 means a curve with positive slope. * ( ) Yi  h Pi  P Yi Pi P  0 * Yi  Yi