What is Neo-Keynesian economics?
Q: What is Neo-Keynesian economics?
A: Neo-Keynesian economics is a school of macroeconomic thought that was developed after World War II from the writings of John Maynard Keynes. It synthesizes neo-classical models of economics with Keynes' original analysis and uses the IS/LM model to relate aggregate demand and employment to three variables, such as the amount of money in circulation, the government budget, and the state of business expectations.
Q: Who attempted to interpret and formalize Keynes' writings?
A: A group of economists (notably John Hicks, Franco Modigliani, and Paul Samuelson) attempted to interpret and formalize Keynes' writings.
Q: How did this model become popular with economists after World War II?
A: This model became popular with economists after World War II because it could be understood in terms of general equilibrium theory.
Q: What caused a series of developments in the 1970s that shook neo-Keynesian theory?
A: The developed world suffered from slow economic growth and high inflation at the same time (stagflation), as well as Milton Friedman's work which cast doubt on neo-Keynesian theories, caused a series of developments in the 1970s that shook neo-Keynesian theory.
Q: What was created by new Keynesians in order to give Keynesian macroeconomic reasoning a microeconomic basis?
A: The new Keynesians helped create a "new neo-classical synthesis" which currently forms the mainstream of macroeconomic theory in order to give Keynesian macroeconomic reasoning a microeconomic basis.
Q: How are neo-Keynesians sometimes referred to now?
A: Following the emergence of the new Keynesian school, neo-Keynesians have sometimes been referred to as Old-Keynesians.
