ABSTRACT

During the 1970s economists witnessed radical changes in orthodox macroeconomic theory as the New Classical model replaced the Keynesian model as the standard framework of analysis. The theoretical transformation comprised two fundamental changes-first, the replacement of the disequilibrium premise of Keynesian analysis with a general equilibrium orientation and, second, the extension of the rationality hypothesis to accommodate the formation of expectations. Equally striking was the policy change that New Classical macroeconomics engendered: the corollary policy recommendation from the Keynesian interventionist stance to the New Classical proposition that the institution of a laissez-faire framework of predictable rules would provide better for macroeconomic growth and stability.