Question

Lucas’ point of view, what are the limitations of the Keynesian model? What improvements does he suggest?

 

23 Jan 2017
Answer :
Word Count : 573

One of the most influential economists since the 1970s, he challenged the foundations of macroeconomic theory (previously dominated by the Keynesian economics approach), arguing that amacroeconomic model should be built as an aggregated version of microeconomic models (while noting that aggregation in the theoretical sense may not be possible within a given model). He developed the "Lucas critique" of economic policymaking, which holds that relationships that appear to hold in the economy, such as an apparent relationship between inflation and unemployment, could change in response to changes in economic policy. This led to the development of neoclassical andNew Keynesian

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