New Classical Macroeconomics

About New Classical Macroeconomics The new classical macroeconomics school of thought was based on the neoclassical background. This school of thought which originated in the 1970s was formulated by key economists such as by Robert Lucas, Thomas Sargent, Neil Wallace, and Edward Prescott. The New Classical Macroeconomics school of thought attempts to analyse macroeconomic models using the microeconomic models.Advertising We will write a custom essay sample on New Classical Macroeconomics specifically for you for only $16.05 $11/page Learn More Specifically, this school of though has the primary building blocks borrowed from classical economics that was originally formulated by Adam Smith. The school of thought contradicts with the new Keynesian school of thought since the latter makes use of the microeconomic foundations to produce macroeconomic models. The New Classical Macroeconomics school of thought pays attention to the role of rational economic age nts and the theory of rational expectations in making decisions. Based on the rational expectations, the school of thought assumes that agents aims at maximising utility. The model opines that the government intervention in demand management is not effective in the short run (Bade and Parkin 2009, p. 43). Thus, this analytical treatise attempts to explicitly discuss the main propositions of the New Classical Macroeconomics and its policy implications in understanding macroeconomics models. Propositions of the New Classical Macroeconomics Specifically, the three main propositions that will be extrapolated include flexible prices, imperfect information and rational expectation. The treatise explicitly explores the concept of rational expectation in addressing the propositions of the new classical macroeconomic school of thought. Rational Expectation About the rational expectation theory The rational expectation hypothesis argues that expectations are formed on the basis of available i nformation. Reflectively, the information should be relevant and based on the variables being predicted. The hypothesis states that agents should comprehend the fundamental economic associations in the economy and assumes that expectation errors are not systematic but are random. Random expectation is different from adaptive expectation since adaptive expectations have no random errors. The lack of randomness of the adaptive expectations makes adaptive expectations not satisfactory when dealing with agents (Barber 2010, p. 32).Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Accordingly, rational expectations require the agents to be coherent and optimising. This implies that agents make use of all available information in an efficient way to make informed decisions on their expectations about economic variables. The hypothesis argues that for the agents to form rational expectations, then they must be aware of the true economical model that connects all the relevant economic variables. For instance, assume that a true economic model that estimates the price level is given by the quantity theory of money. The information to be provided in the economic model that would help agents make rational decisions should comprise of variables such as money supply, speed of money, and nominal and real income. Besides, the agents must be well informed and where possible be educated in order to be in a postion to make decisions based on the relevant economic theory. Additionally, the hypothesis assumes that the agents are aware and well educated of the relevant economic model, and that they use the model to make decisions. For the model to work, then the errors should not be serially correlated and the errors should have a zero mean and should have the features of a random variable, that is, identically, and independently distributed. Interestingly, the errors in time (t) are not c orrelated with errors in time (t-1) (Henderson 2004, p. 51). Explanation of rational hypothesis above is unrealistic in the sense that there is no possibility of having perfect information. As a matter of fact, it is not possible to have a scenario where all players in the market have perfect information. Further, it is based on Walrasian assumptions that may not be practical in the market. Also, error terms in different periods are often related to the market dynamics and not static. Shortcomings of the rational expectation hypothesis In as much as the rational expectation hypothesis forms the major proposition of the New Classical Macroeconomics, it has a number of shortcomings. First, the hypothesis is unrealistic since it ignores the influence of fiscal and monetary policies in the economy. Reflectively, it is not possible for such a scenario to occur since most economies have set up various institutions that work towards maintaining the stability of the economy. Examples of suc h institution are the central bank and financial institutions (Saada 2009, p. 63). Secondly, the hypothesis assumes that all agents in the economy have perfect information about the expected behavior of the economy. This is not feasible in any economy since it is not possible in any economy. Rather, it is an idealised assumption that only exists in a perfectly competitive economy. Thirdly, the model assumes that all agents are well informed of the actions they should take when the economy changes. This is not feasible since not all players in an economy have the perfect information. Thus, the assumptions of the rational expectation hypothesis casts doubt on the effectiveness of the New Classical Macroeconomics (Parkin 2007, p. 33).Advertising We will write a custom essay sample on New Classical Macroeconomics specifically for you for only $16.05 $11/page Learn More Flexibility of prices The New Classical Macroeconomics school of thought assumes that pri ces are flexible. This implies that the market operates without intervention or impediments so as to allow complete flexibility. Consequently, the forces of demand and supply sets the equilibrium price and quantity. This also implies that the economy will be operating at the natural rate of output. Flexibility of prices requires that the prices of goods and services and wages in the economy to befully determined by the forces of demand and supply. This ignores the existence of labor unions and government intervention such as minimum wage principles (Chrystal and Price 1994, p. 27) which are vital in price determination. Imperfect information The second key proposition of this school of thought is imperfect information. The proposition asserts that the economic agents in the economy do not have perfect information concerning the economy. This is because they live in a random environment and more than often, there are swings in the economy and having a perfect information on how the e conomy will work is not feasible. This proposition contradicts with the rational expectations theory which assumes that all agents in the economy have adequate information and that they will make use of all available information to make informed decisions (Snowdon and Vane 2005, p. 29). Impact of the propositions Based on the propositions, the New Classical Macroeconomics holds that the market will clear by itself at all times. In addition, the economy will be operating at full employment and at a natural level of output all the time. However, there are adjustments on the prices and wages so as to achieve the natural level of output. Therefore, the New Classical Macroeconomics argue that there should be no interference in the market since the market clears all the times. They auxiliary argue that, in times of crisis such as during a recession, the market should be allowed to clear without making adjustments in the market. The arguments of the New Classical Macroeconomics are consist ent with how the perfect market operates on the assumption that prices are flexible. The perfect markets also assume that all players in the market aim at maximising their utility. For instance, buyers aim at maximising their utility, workers aim at maximising their welfare, and sellers aims at maximising revenue and profits.Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Finally, there are no transaction costs in the market. The efficiency theory of the New Classical Macroeconomics school of thought is consistent with the Say’s law (in Classical economics) which states that in an economy, the aggregate supply must be equal to the aggregate demand so as to ensure stability. Based on the comparison with the perfect market, it implies that the New Classical Macroeconomics school of thought ensures that there is a Pareto efficient market. Thus, one person cannot gain without making another person lose in the market because the resources are allocated using equilibrium forces. Further, firms only earn normal profits from business operations since competition would reduce any abnormal profits earned (Moon 2013, p. 22). Policy implication of the New Classical Macroeconomics Self adjusting economy As mentioned above, the New Classical Macroeconomics school of thought assumes that the economy is self correcting all the time. This implies that there is no need for intervention to correct imbalances in the economy. This is as a result of the efficiency of the economy. The model asserts that the economy has several mechanisms that ensure that all imbalances are restored to the equilibrium state at all times. From this school of thought, it can be deduced that since the economy operates at close to full employment and natural level of output, then there is no need to aggressively interfere with the economy since intervention may cause disequilibrium or inflation. Thus, the school of thought ensures that an economy has free markets that do not have failures and is achieved using the supply side policies. The supply side policies are used to increase aggregate supply without increasing the price level in the economy. An example of the supply side policy would be to reduce the amount of benefits at work so as to increase the upturn of people to work in addition to reducing the influence of trade unions so as to make wages in the econom y more flexible. Generally, the policy aims at minimising regulations so as to make the markets open to the forces of demand and supply (Wessels 2006). Secondly, the New Classical Macroeconomics school of thought ensures that the quantity of money supply in the economy is under control so as to keep the inflation rates at low levels. Examples of the policies that can be put in place to control money supply is introducing controls on interest rates and monetary base. As a result, the amount of money demanded and money supplied in the economy will be controlled by the forces of demand and supply (Mankiw 2011, p. 48). Conclusion The New Classical Macroeconomics school of thought is built on the assumption that all agents in the economy use the information available to make rational decisions. As a consequence, the behavior of all agents in the economy is consistent with the rational expectation hypothesis. However, this hypothesis is based on unrealistic assumptions that casts doubt on the efficiency of the New Classical Macroeconomics school of thought. The school of thought ensures efficiency since the economy is self correcting and thus, there is no need of any kind of intervention. The efficiency assumption is similar to the characteristics of a perfect market. It is also built based on some quite unrealistic assumptions (Arnold 2008, p. 29). The policy implication of the New Classical Macroeconomics of a self adjusting economy has been criticised in a number of areas. The policy does not give an account of unemployment in an economy because, based on the school of thought, it is expected that the forces of labor supply and labor demand will create equilibrium in the economy. This equilibrium in the labor market should yield full employment implying that there should be zero unemployment rate. However, this is contrary to most economies since soaring unemployment rates has discredited the underlying assumptions of this school of thought (Adil 2006, p. 31). Se condly, the school of thought fails to explain the existence of a business cycle in an economy caharacterised by the cycles of boom, depression, recession, and recovery. Based on the New Classical Macroeconomics school of thought, an economy should not experience the business cycle. This is because the economy should be in a position to self correct before moving to another point in the cycle. This school of thought cannot give explanations for the recession that was experienced between 2009 and 2010 (Mankiw 2011, p. 38). In as much as the New Classical Macroeconomics school of thought is based on unrealistic assumptions and it has failed in certain areas, it gives directions on how to influence the supply side so as to achieve stability in the economy. Reference List Adil, J 2006, Supply and demand, Capstone Press, USA. Arnold, R 2008, Economics, Cengage learning, USA. Bade, R Parkin, M 2009, Essential foundations of economics, Pearson Education, United States of America. Barber, R 2010, Elasticity, University of Michigan, New York. Chrystal, A Price, S 1994, Controversies in Macroeconomics, Harvester Wheatsheaf, Hertfordshire. Henderson, D 2004, Supply and demand, Kessinger Publishing, USA. Mankiw, G 2011, Principles of economics, Cengage Learning, USA. Moon, M 2013, Demand and supply integration: The key to world-class demand forecasting, Pearson Education Inc., USA. Parkin, M 2007, Economics, University of Michigan, USA. Saada, S 2009, Elasticity: theory and application, Ross Publishing, USA. Snowdon, B Vane, H 2005, Modern Macroeconomics: Its Origins, Development and Current State, Edward Elgar, Cheltenham. Wessels, W 2006, Economics, Barron’s Educational Series, USA. This essay on New Classical Macroeconomics was written and submitted by user Orange Rhinoceros to help you with your own studies. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly. You can donate your paper here.

King Lear Essays (1396 words) - King Lear, Edmund, Cordelia, Goneril

King Lear Essays (1396 words) - King Lear, Edmund, Cordelia, Goneril King Lear In Shakespeare's classic tragedy, King Lear, the issue of sight and its relevance to clear vision is a recurring theme. Shakespeare's principal means of portraying this theme is through the characters of Lear and Gloucester. Although Lear can physically see, he is blind in the sense that he lacks insight, understanding, and direction. In contrast, Gloucester becomes physically blind but gains the type of vision that Lear lacks. It is evident from these two characters that clear vision is not derived solely from physical sight. Lear's failure to understand this is the principal cause of his demise, while Gloucester learns to achieve clear vision, and consequently avoids a fate similar to Lear's. Throughout most of King Lear, Lear's vision is clouded by his lack of insight. Since he cannot see into other people's characters, he can never identify them for who they truly are. When Lear is angered by Cordelia, Kent tries to reason with Lear, who is too stubborn to remain open-minded. Lear responds to Kent's opposition with, Out of my sight!, to which Kent responds, See better, Lear, and let me still remain (I.i.160). Here, Lear is saying he never wants to see Kent again, but he could never truly see him for who he was. Kent was only trying to do what was best for Lear, but Lear could not see that. Kent's vision is not clouded, as is Lear's, and he knows that he can remain near Lear as long as he is in disguise. Later, Lear's vision is so superficial that he is easily duped by the physical garments and simple disguise that Kent wears. Lear cannot see who Kent really. He only learns of Kent's noble and honest character just prior to his death, when his vision is cleared. By this time, however, it is too late for an honest relationship to be salvaged. Lear's vision is also marred by his lack of direction in life, and his poor foresight, his inability to predict the consequences of his actions. He cannot look far enough into the future to see the consequences of his actions. This, in addition to his lack of insight into other people, condemns his relationship with his most beloved daughter, Cordelia. When Lear asks his daughters who loves him most, he already thinks that Cordelia has the most love for him. However, when Cordelia says, I love your Majesty/According to my bond, no more nor less (I.i.94-95), Lear cannot see what these words really mean. Goneril and Regan are only putting on an act. They do not truly love Lear as much as they should. When Cordelia says these words, she has seen her sisters' facade, and she does not want to associate her true love with their false love. Lear, however, is fooled by Goneril and Regan into thinking that they love him, while Cordelia does not. Kent, who has sufficient insight, is able to see through the dialogue and knows that Cordelia is the only daughter who actually loves Lear. He tries to convince Lear of this, saying, Answer my life my judgment,/Thy youngest daughter does not love thee least (I.i.153-154). Lear, however, lacks the insight that Kent has. He only sees what is on the surface, and cannot understand the deeper intentions of the daughters' speeches. As his anger grows from the argument, his foresight diminishes as he becomes increasingly rash and narrow minded . When Lear disowns Cordelia, he says, we/Have no such daughter, nor shall ever see/That face of hers again (I.i.264-266). He cannot see far enough into the future to understand the consequences of this action. Ironically, he later discovers that Cordelia is the only daughter he wants to see, asking her to forget and forgive (IV.vii.85). By this time, he has finally started to gain some direction, and his vision is cleared, but it is too late for his life to be saved. His lack of precognition had condemned him from the beginning. Lear depicts Shakespeare's theme of clear vision by demonstrating that physical sight does not guarantee clear sight. Gloucester depicts this theme by demonstrating clear vision, despite the total lack of physical sight. Prior to the loss of his eyes, Gloucester's vision was much like

Review of George Orwells Homage to Catalonia Essay

Review of George Orwells Homage to Catalonia - Essay Example I could not help thinking that it would be even luckier not to be shot at all"i. These revelations remained with Blair for the rest of his life. These are the origins of Homage to Catalonia, and a later article called "Looking back on the Spanish War", in which a clear description of Orwell's "Here, we are, soldiers of a revolutionary army, defending Democracy against Fascism, fighting a war which is about something, and the detail of our lives is just as sordid and degrading as it could be in prison"ii. He also felt that he needed to write a story which told the tale of the war from the perspective of a soldier, not a journalist: "Throughout the fighting, I never made the correct 'analysis' of the situation that was so glibly made by journalists hundreds of miles away."iii. Orwell clearly despises this kind of journalism which distanced itself from the events. In fact, he had gone to Catalonia with the intention of writing a serious of articles about it, but quickly changed his mind: "I had come to Spain with some notion of writing newspaper articles, but had joined the militia almost immediately, because at that time and i n that atmosphere it seemed the only conceivable thing to do"iv. Or Orwell begins Homage to Catalonia, not with an account of the political events, or even to his decision to join the army, but with an account of meeting another foreigner fighting on the Communists' side: "It was the face of a man who could commit murder and throw away his life for a friend - the king of face you would expect in an Anarchist, though as likely as not he was a communist"v. He emphasizes how this was clear in his personal memory because of its intimate connection with "That period of the war - the red flags in Barcelona, the gaunt trains full of shabby soldiers creeping to the front, the grey war-stricken towns farther up the line, the muddy, ice-cold trenches in the mountains"vi. This launches the chapter into a very descriptive narrative of the Scene in Catalonia when Orwell/Blair signed up to the army. Much of it these passages read like 'scene setting' in a novel: churches are being demolished, shops and even bootblacks are collectivized, and everyone calls each oth er 'comrade', and says 'hello' instead of 'good day', a communist paradise: "I believed that things were as they appeared, that this was really a workers State, and that the entire bourgeoisie hadfledI did not realize that great numbers of well-to-dowere simply lying low".vii. Despite of this positive image of the town, where people are free, Orwell is careful to remind us that this is a nation in conflict: "There was something of the evil atmosphere of war. The town had a gaunt untidy look, roads and buildings were in poor repairthere was a shortage of coal, sugar and petrol, and a really serious shortage of bread"viii. He also underlines that many of those fighting in the war were civilian militias, poorly trained and idealistic, rather than like an army; even the clothes were unlike an organized army: "Everyone's clothes followed the same general plan, but they were never quite the same in any two cases"ix. The second chapter