Neo-Keynesianism is an economically centrist ideology, whose general economic theory derived from the Neo-Classical economic thought in a mix with Keynesian economics.
A group of economists sought to synthesize the work of John Maynard Keynes with numerous aspects of the neoclassical economic orthodoxy, this came to be known as the Neoclassical synthesis. This framework largely retained neoclassical analysis with regards to microeconomics and analysis on the level of the individual and/or the firm, while incorporating Keynesian analysis with regards to macroeconomics. This school of thought was dominant from the 1950s to the 1970s. Neo-Keynesianism fell out of favor due to the stagflation of the 1970s and the work of monetarists such as Milton Friedman.
The two most prominent economic models with roots in Neo-Keynesian thought are:
- IS-LM model: It relates aggregate demand and employment to three exogenous quantities, i.e. the amount of money in circulation, the government budget and the state of business expectations. It became really popular as a way to analyze the effect demand shocks in the overall economy
- Phillips curve: This curve was an empirical view of analyzing, to get to the conclusion, that more inflation would cause a lower employment rate.
How to Draw
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IS-LM: An Explanation by John Hicks
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