Lect 1
24Introduction and heritageBriefly, for the long-run, the modern classical model is a compact form of the Walrasiangeneral equilibrium model, so that its implications are consistent with those of the latter.It provides the benchmark conclusions, consistent with the stylized facts, on the long-runrelationship between money and output. For the short-run, the modern classical modelproduces transient and self-correcting deviations from full employment, so that there is nosensible role for systematic monetary and fiscal policies in both the short-run and the long-run. For the short-run, the implications of the model for output and unemployment are notvalid.V. New classical modelThe new classical model imposes the assumption of Ricardian equivalence on the modernclassical model. This assumption is an aspect of intertemporal rationality and the Jeffersonian(democratic) notion that the government is nothing more than a representative of its electorateand is regarded as such by t...