new classical economics

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A school of economics based on the assumption that all economic agents hold rational expectations and that all markets clear. New classical models also assume utility maximization by consumers and profit maximization by firms. The consequence of these assumptions is a belief that unemployment is essentially voluntary, produced by the provision of perverse incentives by the state, and that discretionary government policies are destabilizing. This leads to the advocacy of laissez-faire policies, and to a belief that inflation can be controlled by strict monetary policy at zero real cost.

Subjects: Economics.

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