The Building Blocks of Neoclassical Analysis

Review Questions

Does neoclassical economics focus on the long term or the short term? Explain your answer.

Does neoclassical economics view prices and wages as sticky or flexible? Why?

What shape is the long-run aggregate supply curve? Why does it have this shape?

What is the difference between rational expectations and adaptive expectations?

A neoclassical economist and a Keynesian economist are studying the economy of Vineland. It appears that Vineland is beginning to experience a mild recession with a decrease in aggregate demand. Which of these two economists would likely advocate that the government of Vineland take active measures to reverse this decline in aggregate demand? Why?