Answer to Question #272372 in Macroeconomics for Saman Khalil

Question

What are the major policy conclusions of classical economics? Explain how these

policy conclusions follow from the key assumptions of the classical theoretical

system.

Answer 1

Classical economics supports the concept that free markets are self-regulating and assist to achieve an efficient outcome.

Classical economics' major policy conclusions are that there are no deviations from full employment. The market self-regulates and maintains full employment. In free markets, the government plays a minor or non-existent role. Economic progress is the result of these open markets.

Classical economics is composed of three main assumptions:

1.Flexible prices—This implies that the market is always in equilibrium and that any shortages or surpluses are eliminated.

2. Say's Law—Law Actually says states that enough money is generated to buy the things produced.

3.Equivalent Savings and Investment: This means that any income leakage is injected back into the economy with an equal quantity of investment.

So, by eliminating surpluses and shortages, these assumptions attempt to generate the impression that the economy would operate at full employment. According to legislation, if manufacturing stays on schedule, the overall economy will be perfectly fine. Any savings that are not matched by an equal level of investment will not bring the economy back into balance.