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Several assumptions are common to most New Classical models. Primarily, all agents are assumed to be rational (utility-maximising) and possess rational expectations. At any one time, the macroeconomy is assumed to have a unique equilibrium at full employment or potential output and this equilibrium is assumed to always have been achieved via price and wage adjustment (market clearing).

New Classical Economics has also pioneered the use of representative agent models. Such models have recently received severe neoclassical criticism, pointing to the clear disjuncture between microeconomic behavior and macroeconomic results, as indicated by the Sonnenschein-Mantel-Debreu theorem (Kirman, 1992) and the fallacy of composition. In some ways, this critique is akin to the Cambridge capital controversy, which discredited the neoclassical aggregate production function.

The most famous New Classical model is that of Real business cycles, developed by Robert Lucas JrRobert Emerson Lucas, Jr. born September 15, 1937) is an American economist at the University of Chicago. He received The Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel in 1995. Lucas was born in Yakima, Washington. Perhaps one of the, who later received the Nobel PrizeThe Nobel Prizes (pronounced no-BELL or no-bell are awarded annually to people who have done outstanding research, invented groundbreaking techniques or equipment, or made outstanding contributions to society. It is generally regarded as the supreme comme for his work.

1 External links

• Article from Economics Encyclopedia.

2 References

• Alan P. Kirman, "Whom or What does the Representative Individual Represent?" Journal of Economic Perspectives 6(2), Spring 1992: 117-136.