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That school criticized the inconsistencies of Keynesianism in the light of the concept of "rational expectations". The new classicals combined a unique market-clearing equilibrium (at full employment) with rational expectations. The New Keynesians used "microfoundations" to demonstrate that price stickiness hinders markets from clearing.
Rational expectations was introduced into economics by John Muth, [9] then Robert Lucas, Jr., and Edward C. Prescott took it much farther. In work written in close collaboration with Lucas and Neil Wallace , Thomas J. Sargent contributed fundamentally to the evolution of new classical macroeconomics .
Jan 30, 2023 · Rational expectations theory posits that investor expectations will be the best guess of the future using all available information. Expectations do not have to be correct to be rational; they just have to make logical sense given what is known at any particular moment.
A central development in new classical thought came when Robert Lucas introduced rational expectations to macroeconomics. Prior to Lucas, economists had generally used adaptive expectations where agents were assumed to look at the recent past to make expectations about the future. Under rational expectations, agents are assumed to be more ...
The rational style is an in-depth search for, and a strong consideration of, other options and/or information prior to making a decision. In this style, the individual would research the new job being offered, review their current job, and look at the pros and cons of taking the new job versus staying with their current company.
The concept of rational expectations was originally used by John Muth, [10] and was popularized by Lucas. [11] One of the most famous new classical models is the real business cycle model, developed by Edward C. Prescott and Finn E. Kydland.
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