Bring out the salient features of new-classical macroeconomics.

 New classical macroeconomics (NCM) is a school of thought within macroeconomic theory that emerged in the 1970s as a response to the perceived shortcomings of traditional Keynesian economics. NCM is based on the premise that individuals and firms are rational and forward-looking, and that markets are efficient and adjust quickly to changes in supply and demand. Here are some salient features of NCM:

1. Rational expectations: According to NCM, individuals and firms have rational expectations, meaning that they use all available information to form expectations about future economic outcomes. This includes information about past trends, current economic conditions, and anticipated policy changes. Rational expectations imply that economic agents are forward-looking and can anticipate the effects of current policy decisions on future economic outcomes.

2. Market efficiency: NCM emphasizes the efficient functioning of markets, including labor markets, capital markets, and product markets. Markets are assumed to clear quickly and efficiently, meaning that prices adjust to changes in supply and demand, and that there are no persistent shortages or surpluses. The efficient functioning of markets is seen as a key factor in achieving economic growth and stability.

3. Real business cycles: NCM argues that fluctuations in output and employment are largely driven by changes in technology and productivity, rather than by fluctuations in aggregate demand or government policy. These fluctuations are known as real business cycles (RBC), and are seen as a natural part of the economic cycle. RBC theory emphasizes the importance of technological progress and efficient resource allocation in driving long-term economic growth.

4. Fiscal policy ineffectiveness: NCM challenges the effectiveness of fiscal policy in stabilizing the economy, arguing that changes in government spending or taxation have only a short-term impact on output and employment. This is because individuals and firms anticipate changes in policy, and adjust their behavior accordingly. For example, if the government increases spending, individuals may expect higher future taxes, and may reduce their own spending in anticipation of higher taxes.

5. Monetary policy effectiveness: NCM emphasizes the effectiveness of monetary policy in controlling inflation and stabilizing the economy. Central banks can control the money supply and interest rates, which can influence spending and investment decisions by households and firms. However, the effectiveness of monetary policy depends on the credibility of the central bank and its ability to maintain price stability over the long term.

Overall, NCM emphasizes the importance of market efficiency, rational expectations, and the role of technology and productivity in driving economic growth and stability. It challenges the effectiveness of traditional fiscal policy and emphasizes the importance of credible monetary policy in controlling inflation and stabilizing the economy. NCM has had a significant impact on macroeconomic theory and policy in recent decades, and has influenced the development of new policy tools and strategies aimed at promoting economic growth and stability.

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