NCM stands for New Classical Macro economics, which is an economic theory that emerged in the 1970s as a response to the perceived shortcomings of Keynesian economics. It focuses on the belief that economic agents, such as households and firms, are rational and forward-looking in their decision-making processes.
In NCM, the theory emphasizes the importance of expectations and how they shape economic outcomes. It suggests that individuals base their decisions on their rational expectations of future events, taking into account all available information. This means that economic agents make decisions based on their predictions of future prices, interest rates, and other economic variables, rather than solely relying on current conditions.
Under NCM, the economy is viewed as self-regulating and efficient in the long run. It emphasizes the role of market forces in determining resource allocation and advocates for minimal government intervention in the economy. NCM also places importance on the concept of credibility, as it suggests that economic policies need to be credible in order to influence expectations and achieve desired outcomes.
Overall, NCM represents a departure from the Keynesian school of thought by emphasizing the role of expectations, rationality, and market forces in shaping economic outcomes. It has had a significant impact on macroeconomic thinking and policy-making, particularly in the areas of monetary policy and fiscal policy.
