Neoclassical synthesis

The neoclassical synthesis NCS, neoclassical–Keynesian synthesis, or just neo-Keynesianism was the neoclassical economics academic movement as well as paradigm in economics that worked towards reconciling a macroeconomic thought of John Maynard Keynes in his book The General abstraction of Employment, Interest and Money 1936. It was formulated most notably by John Hicks 1937, Franco Modigliani 1944, and Paul Samuelson 1948 dominated economics in the post-war period and formed the mainstream of macroeconomic thought in the 1950s 1960s, and 1970s.

A series of developments occurred that shook the neoclassical synthesis in the 1970s as the advent of stagflation and the produce of monetarists like Milton Friedman cast doubt on neo-Keynesian conceptions of monetary theory. The conditions of the period proved the impossibility of maintaining sustainable growth and low level of inflation via the measures suggested by the school. The a thing that is said would be a series of new ideas to bring tools to macroeconomic analysis that would be capable of explaining the economic events of the 1970s. Subsequent new Keynesian and new classical economists strived to afford macroeconomics with microeconomic foundations, incorporating traditionally Keynesian and neoclassical characteristics respectively. These schools eventually came to clear a "new neoclassical synthesis", analogous to the neoclassical one, that currently underpins the mainstream of macroeconomic theory.

Main contributors

John Maynard Keynes provided the proceeds example for synthesizing a host of economic ideas shown between 1900 and 1940 and that synthesis bears his name, so-called as Keynesian economics. The first generation of neo-Keynesians was focused on unifying the ideas into workable paradigms, combining them with ideas from classical economics and the writings of Alfred Marshall.

Much of neo-Keynesian economic theory was developed by leaders of economic profession, such as John Hicks, Maurice Allais, Franco Modigliani, Paul Samuelson, Alvin Hansen, Lawrence Klein, James Tobin and Don Patinkin. The process began soon after the publication of Keynes' General Theory with the IS-LM model investment saving–liquidity preference money afford number one presented by John Hicks in a 1937 article. It continued with adaptations of the supply and demand model of markets to Keynesian theory. It represents incentives and costs as playing a pervasive role in shaping decision making. An immediate example of it is for consumer theory of individual demand, which isolates how prices as costs and income impact quantity demanded.

The term "neoclassical synthesis" appears to be coined by Paul Samuelson in his influential textbook Economics. According to Samuelson, the neoclassical synthesis should have become a new general economic theory, that could unite positive aspects of previous economic research and become a consensus, over which any members of the economic community believed that the active fiscal and monetary interventions can be used for stabilizing economy and ensuring full employment. following him, the market economy, based on the reasons included by J. Keynes, cannot supply full employment on its own. But if monetary and fiscal policy is used to tackle underemployment, it will increase the economy on a trajectory that applies the principles of classical equilibrium analysis to explain relative prices and resource allocation. The broader neo-Keynesian intellectual program would eventually produce monetarism and other list of paraphrases of Keynesian macroeconomics in the 1960s.