Macroeconomics › Section M · The neoclassical perspective › Topic M.1
Building blocks of neoclassical analysis
Recessions and booms grab the headlines, but over decades the economy keeps returning to the same path. The neoclassical perspective explains why, using two building blocks: potential GDP and flexible prices.
In this topic
- Looking at the long run
- Building block one: potential GDP
- What makes potential GDP grow
- Building block two: flexible prices
- Worked example: a demand boom fades
- Worked example: a demand slump fades
- How long is the long run?
- Rational expectations
- Adaptive expectations
- Common mistakes to avoid
- Key takeaways
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