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Short Note on Neo-Classical Synthesis
Neo Classical Synthesis, also known as the Neo-Keynesian theory in Economics, refers to the post-war development in Macroeconomics where the elements of Keynesian macroeconomics and classical microeconomic theories were combined.
Till 1930s, Classical economists prevailed with their theories that markets were self regulating and were the most prominent method of distributing resources. On the other hand, Keynesian theory proposed that markets were not self regulating and it was possible for them to be below full employment level at certain times.
The Neo-classical synthesis is a combination of both and suggests both the theories were right. The Keynesian Theory was right in the short term and the Classical theory was correct in the long term. It implies that markets may be out of equilibrium in the short term but in long term, markets are the best in distribution of resources.
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