Macroeconomic Themes:51 New Keynesian Revival They use the micro foundations approach as used by the New Classical school. They argue that the Keynesian.

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Presentation transcript:

Macroeconomic Themes:51 New Keynesian Revival They use the micro foundations approach as used by the New Classical school. They argue that the Keynesian conclusions about the effectiveness of fiscal and monetary policy are still valid because goods and labour market do not clear quickly because of imperfections in these markets. Prices and wages are sticky.

Macroeconomic Themes:52 Market fails and prices and wages are sticky because of following reasons: menu cost long period sales and purchase agreements and imperfect competitions in goods markets and wage contracts between unions and employers, insider-outsider behaviour of unions, efficiency wage behaviour in the labour market.

Macroeconomic Themes:53

4 Role of Price and Wage Mark Ups for the Upward Sloping Aggregate Supply Line?

Macroeconomic Themes:55 Old Question:Why is the AS Curve Upward Sloping? New answer: Mark Ups in Wage Rate and Prices

Macroeconomic Themes:56 Menu Cost and Impact of an Increase in Aggregate Demand

Macroeconomic Themes:57 Menu Cost and Impact of an Increase in Aggregate Demand

Macroeconomic Themes:58 Output Impact of Menu Costs

Macroeconomic Themes:59 Mankiw’s Menu Cost Model

Macroeconomic Themes:510 Profit, Menu Cost and Output

Macroeconomic Themes:511 Efficiency wage and unemployment

Macroeconomic Themes:512 Insider-outsider theories of wage bargaining and determination of unemployment

Macroeconomic Themes:513 References