Monday, December 23, 2019

Classical Theory of Employment - 5251 Words

Project The Classical Theory Of Employment amd output The fundamental principle of the classical theory is that the economy is self-regulating. Classical economists maintain that the economy is always capable of achieving the natural level of real GDP or output, which is the level of real GDP that is obtained when the economys resources are fully employed. While circumstances arise from time to time that cause the economy to fall below or to exceed the natural level of real GDP, self-adjustment mechanisms exist within†¦show more content†¦Some workers will be rendered superfluous and will remain unemployed. The classical answer to the problem is that like all other goods and their prices workers’ wage rate should be cut or lowered so that the employers will be induced to employ more number of workers. The condition of full employment can then be restored if workers are agreed upon the wage cut solution. Thus flexible rate of wages is a classical approach to solve the problem of unemployment. It is possible that some workers may resist a cut in the wage rate and may remain unemployed. But according to the classical viewpoint such unemployment is only voluntary in nature. Moreover individual employers face excess supply of labor conditions. Therefore such unemployment is only temporary and partial in nature. With the acceptance of the law: Supply creates its own demand, there cannot be any prolonged, involuntary and general unemployment situation in the economy. The classical theory therefore rules out any general or widespread kind of unemployment. This sort of classical assertion is a result of the typical approach of the classicists to the capitalist free enterprise system. They believed in the self-equilibrating nature of such an economy. Even if there are any disturbances in the initial equilibrium conditions these are temporary and minor. Moreover, these can be cured automatically and spontaneously. There is an in-built flexibility in the supply and demand forces whi ch leads the economyShow MoreRelatedMacroeconomic Theories Of Macroeconomics And Classical Economics999 Words   |  4 Pagesthe two most general fields in economics. There are two major macroeconomic theories that economists use to describe the economy. Those theories are Keynesian and Classical. Each theory has a different approach to the economic study of monetary policies, consumer behaviors, and government spending. A few distinctions separate the two theories. Classical economics is the theory that free markets will restore full employment without government intervention. 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