Answer to Question #80682 in Macroeconomics for Kelvin

Question

Suppose that, due for example to reconstruction after a war, the capital stock of a nation increases. Illustrate the effect that the increase in the capital stock would have on output, employment and the real wage in the classical model

Answer 1

The main postulate of the classical economic model is to ensure that it will be spent on production.
During periods of economic turmoil, the market regulates the economy. With the decline in production and inflation, income level, as well as interest rates. However, in the future this will lead to an increase in consumer spending, an increase in employment and investment.
Accordingly, in the post-war period, capital growth will lead to a rapid increase in investment, which in turn will lead to an increase in employment and wages. The speed of growth will be determined by the speed of approach to equilibrium in the market, the onset of which is implicit in classical theory.