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Economic Theory Debate: The Neo-Classical Revolution of the 1980's. Briefly Explain the following. Explain why the Rational Expectations theory of Bob Lucas breaks down the
Economic Theory Debate: The Neo-Classical Revolution of the 1980's.
Briefly Explain the following.
- Explain why the Rational Expectations theory of Bob Lucas breaks down the Phillips Curve and "restores" the classical aggregate supply (from Chapter 3 and 6).
- How can the Real Business Cycle theory by Finn Kydland and Ed Prescott can explain the observed business-cycle fluctuations in output --and employment-- within a classical model?
- Explain why according to Paul Krugman (Keynesian) the Volcker disinflation experiment refuted the Real Business Cycle theory. Why John Cochrane (Neo-Classical) would disagree?
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