1. Classical Theory
1.1 View
Classical economists are not well known for being, optimistic economists. Some of them think that the growth of the population would be too quick for the resources available. They thought that the government was not compelled to take part and attempt to fix this because, it would only escalate things and so in order to boost growth, free trade was to allow. The concept is known as Free Market approach. A lot of Adam Smith 's work was on this argument and also presented the notion of an invisible hand. For many he is seen as the father of modern ecominics.
1.2 Theories
Neo-Classical theories revolved principally on the act of markets in the economy. If markets …show more content…
It could probably work if the labour market functions accurately. If by any chance was unemployment, this would happen:
Unemployment Increased Equilibrium (a surplus of ----------> Fall in ----> demand for -----> restored at full labour) wages labour employment
Labour market …show more content…
Because, accordingly to this law, the minimum increase ‘’Supply’’ will lead to ‘’Demand’’. There will be always full employment and there won’t be any decrease of demand. If there were any unemployment it would be for a short time, as the pattern of demand changes. Although, the same process seen previously will restore equilibrium
Quantity Theory of Money
Neo-classical economists notion of inflation reflect on the Quantity
Theory of Money, which came from Fisher Equation of Exchange: MV = PT
They proposed that the velocity of totation of money would be relatively balance and the number of transactions being done would always gravitate to full employment.
1.3 Policies
Neo-classical economists believe that the economy is adjusting itself, because the economy gravitates to full-employment, there is no demand to interfere in the economy. The main points to long-term balance growth are: Supply side policy Money Supply policy
Supply-side policies
To decrease market imperfections supply-side policies can be used. Which could affect by increasing long-turn aggregate supply. If by any chance the degree of aggregate supply increases then according to Say 's Law the demand will subsequently increase. This will be the only non-inflationary way to get increases in output.
Supply-Side Policy
1.1 View
Classical economists are not well known for being, optimistic economists. Some of them think that the growth of the population would be too quick for the resources available. They thought that the government was not compelled to take part and attempt to fix this because, it would only escalate things and so in order to boost growth, free trade was to allow. The concept is known as Free Market approach. A lot of Adam Smith 's work was on this argument and also presented the notion of an invisible hand. For many he is seen as the father of modern ecominics.
1.2 Theories
Neo-Classical theories revolved principally on the act of markets in the economy. If markets …show more content…
It could probably work if the labour market functions accurately. If by any chance was unemployment, this would happen:
Unemployment Increased Equilibrium (a surplus of ----------> Fall in ----> demand for -----> restored at full labour) wages labour employment
Labour market …show more content…
Because, accordingly to this law, the minimum increase ‘’Supply’’ will lead to ‘’Demand’’. There will be always full employment and there won’t be any decrease of demand. If there were any unemployment it would be for a short time, as the pattern of demand changes. Although, the same process seen previously will restore equilibrium
Quantity Theory of Money
Neo-classical economists notion of inflation reflect on the Quantity
Theory of Money, which came from Fisher Equation of Exchange: MV = PT
They proposed that the velocity of totation of money would be relatively balance and the number of transactions being done would always gravitate to full employment.
1.3 Policies
Neo-classical economists believe that the economy is adjusting itself, because the economy gravitates to full-employment, there is no demand to interfere in the economy. The main points to long-term balance growth are: Supply side policy Money Supply policy
Supply-side policies
To decrease market imperfections supply-side policies can be used. Which could affect by increasing long-turn aggregate supply. If by any chance the degree of aggregate supply increases then according to Say 's Law the demand will subsequently increase. This will be the only non-inflationary way to get increases in output.
Supply-Side Policy