Saturday, September 14, 2013

What is Radicalist Attack

The new classical macroeconomics is primarily radical’s attack on the Keynesian macroeconomics, especially Keynesian approach to the role of people’s expectations in the formulation of their economic plans and its effect on the government policies. The radicalists reject the Keynesian and also the monetarist approach to formulation of price expectations based on the past experience. According to the radicalists, in the Keynesian and also in monetarist models people- the consumers and producers- are assumed to make their price expectations in the response to the government policy actions on the basis of their past experience regarding policy changes and prices. The people continue to do so even if their past experience does not hold under present and future conditions. According to Radicals, such expectations are irrational expectations because they involve systematic error in the sense at the people are assumed to commit the same error time and again, therefore, the reject especially the Keynesian approach to the formulation of price expectations. 

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