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Neo-classical economics

A school of economic thought in the tradition of classical economics, which has developed since the Second World War and which contrasts with that of the Cambridge school. Neo-classical economics is characterized by microeconomic theoretical systems constructed to explore conditions of static equilibrium. The analysis aften takes the form of the comparative study of equilibrium states which are timeless, in the sense that they do not explore the dynamics of the economic system. Statements about macro­events are aften derived from the aggregation of micro-relationships, and this has led to criticism, particularly from the Cambridge school. In contrast to J. M. KEY NES, the neo-classical economists consider that savings determine investment (rather than the other way around). Equilibrium is achieved at full employment by changes in factor prices. Essentially, the neo-classical school has been concemed with the problems of equilibrium and growth at full employment, in contrast to J. M. Keynes, who was primarily concerned with the underemployment of resources.

Reference: The Penguin Dictionary of Economics, 3rd edt.