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Neo-Classical Synthesis: An Introduction.
Neo-Classical Synthesis refers to a post war revolution in economics which attempts to fuse Macroeconomics conceptions of John Maynard Keynes into the neoclassical conceptions of Economics.
Neo-Classical Synthesis, also known as Neo Keynesian theory is a combination of Keynesian Macroeconomics and classical Microeconomics. Classical economists held the view that markets were self regulating and were the most efficient method for distributing resources. Keynesian theory suggested the contrary, that is, markets were not self regulating and could be beneath full employment level at times.
Neo-Classical Synthesis validates both theories and is a fusion of these two. It suggests the Keynesian theory is applicable in short run and the classical theory is applicable in long run. Even if a market goes out of equilibrium in the short run, in long run it still remains the best in distribution of resources.
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