Macroeconomics › Section M · The neoclassical perspective › Topic M.2
Neoclassical policy implications
If the economy returns to potential GDP on its own, what should policy do? Neoclassical economists answer: avoid fine-tuning, keep inflation low and stable, and concentrate on the natural rate of unemployment and long-run growth.
In this topic
- Scepticism about fine-tuning
- Why expectations of inflation matter
- The Friedman-Phelps critique
- The long-run Phillips curve
- Worked example: chasing low unemployment
- NAIRU and the 1970s
- Bringing inflation down
- Worked example: a sacrifice ratio
- Targeting the natural rate
- Policy for long-run growth
- Common mistakes to avoid
- Key takeaways
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