Answer to Question #46741 in Macroeconomics for Sem

Question

Question
1. The classical economist assumed that in order to attain full employment in an economy,w
what should be done?
2. The bursting of the asset-price "bubble" in countries with fixed exchange rates and unrestricted capital flows caused?

Answer 1

1. The economic principles of classical economics indicate that aggregated markets, especially resource markets, automatically achieve equilibrium, meaning full employment of resources is assured. Classical economics also indicates that full employment is achieved and maintained without the need for government intervention and that government intervention is more likely to cause than to correct macroeconomic problems.
2. The bursting of the asset-price "bubble" in countries with fixed exchange rates and unrestricted capital flows caused large capital outflows and a rising exchange rate.