Skip to main content
Back

New Classical Model definitions

Control buttons has been changed to "navigation" mode.
1/15
  • New Classical Model
    A framework emphasizing flexible prices and wages, rational expectations, and a tendency toward full employment and potential GDP.
  • Classical Model
    An economic approach predating the Great Depression, highlighting full employment and resource utilization with minimal government intervention.
  • Keynesian Model
    A theory focusing on sticky prices and wages, advocating government intervention to address recessions and inflation.
  • Potential GDP
    The output level where all resources are fully employed, representing the economy's sustainable production capacity.
  • Full Employment
    A situation where all available labor resources are in use, with unemployment only due to normal job transitions.
  • Flexible Prices
    A condition where market prices adjust rapidly to changes in supply and demand, preventing prolonged shortages or surpluses.
  • Flexible Wages
    A scenario where compensation adjusts quickly in response to economic shifts, allowing labor markets to clear efficiently.
  • Sticky Prices
    A characteristic where prices are slow to change, often causing imbalances during economic fluctuations.
  • Sticky Wages
    A situation where worker pay does not adjust quickly, often due to contracts or institutional factors.
  • Rational Expectations
    An assumption that economic agents use all available information to forecast future variables, especially inflation.
  • Expected Inflation
    The anticipated rate at which prices will rise, influencing current economic decisions by firms and workers.
  • Actual Inflation
    The realized rate of price increases, which may differ from what was previously anticipated.
  • Short Run Phillips Curve
    A graphical representation showing the inverse relationship between inflation and unemployment in the short term.
  • Monetary Growth Rule
    A policy advocating steady, predictable increases in the money supply to stabilize expectations about inflation.
  • Money Supply
    The total amount of monetary assets available in an economy, influencing inflation and economic activity.