General Equilibrium Theory - Other Schools - New Classical Macroeconomics

New Classical Macroeconomics

While general equilibrium theory and neoclassical economics generally were originally microeconomic theories, New classical macroeconomics builds a macroeconomic theory on these bases. In new classical models, the macroeconomy is assumed to be at its unique equilibrium, with full employment and potential output, and that this equilibrium is assumed to always have been achieved via price and wage adjustment (market clearing). The best-known such model is Real Business Cycle Theory, in which business cycles are considered to be largely due to changes in the real economy, unemployment is not due to the failure of the market to achieve potential output, but due to equilibrium potential output having fallen and equilibrium unemployment having risen.