Neo-Keynesian vs. New Keynesian

Attribute	Neo-Keynesian	New Keynesian
Focus	Short-term fluctuations in the economy	Long-term economic growth
Price Stickiness	Believes in rigid prices and wages	Believes in sticky prices and wages
Expectations	Expectations are adaptive	Expectations are rational
Monetary Policy	Emphasizes fiscal policy	Emphasizes monetary policy

Introduction

Neo-Keynesian and New Keynesian economics are two schools of economic thought that have emerged from the original Keynesian economics developed by John Maynard Keynes. While they share some similarities, they also have distinct differences in their approaches to understanding and addressing economic issues.

Keynesian Economics Overview

Keynesian economics is based on the ideas of John Maynard Keynes, who argued that government intervention is necessary to stabilize the economy during times of economic downturns. Keynes believed that aggregate demand is the primary driving force behind economic growth and that government policies, such as fiscal and monetary measures, can help to manage demand and stabilize the economy.

Neo-Keynesian Economics

Neo-Keynesian economics emerged in the 1950s and 1960s as a response to criticisms of traditional Keynesian economics. Neo-Keynesians retained the core principles of Keynesian economics but introduced new ideas to address some of its shortcomings. One key aspect of Neo-Keynesian economics is the incorporation of microeconomic foundations into macroeconomic models.

Neo-Keynesians also emphasize the importance of price and wage rigidities in the economy, which can lead to market inefficiencies and unemployment. They argue that government intervention, such as monetary and fiscal policies, can help to correct these market failures and stabilize the economy.

New Keynesian Economics

New Keynesian economics emerged in the 1980s and 1990s as a further development of Neo-Keynesian economics. New Keynesians build on the ideas of their predecessors but introduce new concepts and methodologies to better explain economic phenomena. One key difference between Neo-Keynesian and New Keynesian economics is the focus on rational expectations and forward-looking behavior.

New Keynesians argue that individuals and firms make decisions based on their expectations of future economic conditions, rather than just reacting to current conditions. This forward-looking behavior can have important implications for the effectiveness of government policies in stabilizing the economy.

Comparing Attributes

While both Neo-Keynesian and New Keynesian economics share the fundamental belief in the importance of government intervention to stabilize the economy, they differ in their approaches and methodologies. Neo-Keynesians focus on price and wage rigidities as the main sources of market inefficiencies, while New Keynesians emphasize the role of rational expectations and forward-looking behavior.

• Neo-Keynesian economics incorporates microeconomic foundations into macroeconomic models.
• New Keynesian economics focuses on rational expectations and forward-looking behavior.
• Neo-Keynesians emphasize price and wage rigidities in the economy.
• New Keynesians argue that individuals and firms make decisions based on their expectations of future economic conditions.

Conclusion

In conclusion, Neo-Keynesian and New Keynesian economics are two important schools of economic thought that have evolved from the original Keynesian economics. While they share some similarities, such as the belief in government intervention to stabilize the economy, they also have distinct differences in their approaches and methodologies. Understanding these differences can help economists and policymakers develop more effective strategies for managing economic fluctuations and promoting long-term growth.