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Macro Economics Classical macroeconomics is the theory and the classical model of the economists
Adam Smith, David Ricardo, John Mills and Jean Baptiste Say. Below the assumptions of the classical macroeconomics are described. ... Assumptions: „h Competitive markets: Classical theories all make many assumptions about the markets and their competitiveness. ... „h Perfect information: In classical theory all economic decision-makers are assumed to be operating by having all the information they needed to make the best decisions. ... „h Full employment: As a result of the above assumptions, a prediction of the classical system is that is essentially operates at full employment on a long-run equilibrium path over time. ...
The classical model incorporates the notion that the economy is on a long-run moving equilibrium path, and any deviations from long run equilibrium are nor permanent because wage and price flexibility can remove excess demands or excess supplies. ... Classical theory found no obstacle to the attainment of these positions as long as the money wage was flexible - that is, as long as it would fall in the face of unemployment. ... Markets The equilibrium levels of output and employment are determined in the classical system as soon as we are given (a) the economys production function, from which is derived the demand curve for labor, and (b) the supply curve of labor. ... Classical economists also regarded this apparatus as reversible. ... In the classical scheme of things, any wage rate other than the equilibrium wage rate, in a system of competitive markets will generate forces causing the wage rise or fall by the amount necessary to establish equilibrium in the labor market. ... Since any other level of employment is a disequilibrium level, a familiar proposition of classical theory is that the equilibrium position in the market for labor is necessarily one of full employment. ... „h Capital market: i S A I S,I Classical model fails to break aggregate demand down into demand for consumption goods and demand for capital goods. ... A part of classical theory provides the mechanism that assures that presumably planned saving will not exceed planned investment. ... Classical theory treated saving as a direct function of the rate of interest and investment as an inverse function. ... Money: Traditionally in economics money has been defined as any generally accepted medium of exchange. ...
The Quantity Theory Of Money In the early classical tradition, all intermediate transactions involving money were accounted for in the equation of exchange.
Approximate Word count = 1912
Approximate Pages = 7.6
(250 words per page double spaced)
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