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New Classical

New classical economics builds on neoclassical ideas and strives to explain how fluctuations in employment and real wages are caused by technological changes and by willingness to work. A distinguishing theory of new classical economics is that wages and prices are immediate and flexible. When the marginal product of labour is affected by technological changes, it will lead to changes in the demand for labour. This will lead to shifts in employment level and wages¹. Changes in willingness to work will cause changes in the labour supply and therefore shifts in the level of employment and wages.

New classical economists will assume that, in business cycles, short-run fluctuations in real GDP are the result of fluctuations in potential output. Therefore, unemployment is equal to the non-accelerating inflation rate of unemployment (NAIRU) and it is the NAIRU that fluctuates¹. Fluctuations in cyclical unemployment are caused by supply shocks from sources like oil price changes and changes in taste.

New classical theory assumes that labour markets are always clear. When people are not working, they are assumed to have voluntarily withdrawn from the labour market. This means that there is no involuntary unemployment.

New classical theory has been supported by the claims that an economy affected by technological shocks and changes in taste shows similar fluctuations to those of a real economy¹. The ideas also show how shocks can spread to different sectors of the economy over time.



1. Ragan, Chrisopher. Macroeconomics/Christopher T.S. Ragan, Richard G. Lipsey. – 13th Canadian ed. 

Scrutinize the amount of elastic demand.

For each of the following pairs of goods, which good would you expect to have more elastic demand and why? a. Required textbooks or mystery novels b. Beethoven recordings or classical music recordings in general c. Subway rides during the next 6 months or subway rides during the next 5 years d. Root beer or water


(See attached files for full problem description) --- Write a 700- to 1,000-word report for Brian Usher offering a critical analysis of current and proposed pricing strategies and profitability for the two business units. ? Include an assessment of whether Odyssey Isle's current pricing strategy is profit-maximizing. ?

Capital Depreciation Rate

(See attached file for full problem description with equations) --- The Classical Model 1. Consider an economy with the following production function: , where the subscript refers to values in year t. Assume that (i) in year t=0, government expenditure is G0=100; (ii) the labor supply curve is vertical, and N is fixed

Project proposal for profit-maximizing: 4795-econ

I need the following questions answered - an assessment of whether Odyssey Isle's current pricing strategy is profit-maximizing. - the revenue and profit implications for the alternative pricing strategies proposed by Bob Radcliffe, James Bender, and Nell Richards. - how Odyssey Isle's current and proposed pricing strate