ABSTRACT
The most enduring tradition in short-run macroeconomics is represented by the classical paradigm. The microeconomic foundations of this paradigm lie in the Walrasian model, presented in Chapter 3 above. In equilibrium, the models of this paradigm imply full employment and full employment output in the economy, so that there is no need for the pursuit of fiscal or monetary policies to improve on the already perfect functioning of the economy. Further, money is usually neutral in the equilibrium states of these models, so that changes in the money supply by the central bank can have no real effects in equilibrium.
