Page 41 - DECO201_MACRO_ECONOMICS_ENGLISH

Macro Economics Ashwani Panesar, Lovely Professional University

Notes Unit 3: Theories of Income, Output and
Employment: Classical Theory

CONTENTS
Objectives

Introduction
3.1 Concepts Related to Classical Theory
3.1.1 Say's Law
3.1.2 The Basic Features of the Classical System

3.2 Equilibrium in Markets
3.2.1 Labour Market Equilibrium
3.2.2 Product Market Equilibrium
3.2.3 Capital Market Equilibrium

3.2.4 Simultaneous Equilibrium in all the markets
3.3 Determination of the Overall Price Level
3.4 Effects of Changes
3.4.1 Technological Changes

3.4.2 Increase in Supply of Labour
3.5 Summary
3.6 Keywords
3.7 Review Questions

3.8 Further Readings

Objectives

After studying this unit, you will be able to:
State the basic features of the classical system;
Describe the Say's Law;

Explain the equilibrium in labour, product and capital market;
Determine the overall price level;
Discuss the effects of changes.

Introduction

Classical economics dominated the mainstream of economic thinking from the late 18th century
until the 1930's. Its chief proponents were Adam Smith, J.B. Say and David Ricardo. The classical
scheme of thinking assumes operation of free enterprise and free price mechanism leading to
automatic adjustments in all the markets.

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