The Neoclassical Synthesis is an economic theory that combines elements of both classical and Keynesian economics. It emerged in the mid-20th century, asserting that the economy is best understood through the interaction of supply and demand, as proposed by neoclassical economists, while also recognizing the importance of aggregate demand in influencing output and employment, as emphasized by Keynesian economics. This synthesis posits that in the long run, the economy tends to return to full employment, but in the short run, prices and wages may be sticky, leading to periods of unemployment or underutilization of resources.
Key aspects of the Neoclassical Synthesis include:
Overall, the Neoclassical Synthesis seeks to provide a more comprehensive framework for understanding economic dynamics by bridging the gap between classical and Keynesian thought.
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