Classical theory of employment

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  • Intro n history
  • Intro n history
  • Intro n history
  • Intro n history
  • Classical theory of employment

    1. 1. Classical theory of employment Bhawna Rajora 117510
    2. 2. The classical economistsbelieved in the existence of full employment in the economy. To them, fullemployment was a normalsituation and any deviation from this regarded as something abnormal. the tendency of the economicsystems is to automatically provide full employment.
    3. 3. FullASSUMPTIONS employment Closed Homogeneous economy Laissez faire Barter system Self adjustment
    4. 4. Say’s law of marketCore of classical theorySupply creates its own demandOverproduction is not possible
    5. 5. Determination of output & employmentO/P & employment determined through production funtion &Demand & supply of laborPrecise relation b/w total o/p & amount of employment i.e. no. ofworkerDiminishing Marginal operates
    6. 6. Wage Price Flexibility Classical economist believed in full employmentsituationIn case of unemployment, a general wage cut inmoney wages would takethe economy to the full employment situation
    7. 7. Labor Market EquilibriumDemand & supply of labour is function of wagerateDemand for labour is decreasing function ofwage rateSupply of labour is increasing function of wagerate
    8. 8. Money Market EquilibriumGeneral Price Level in the economy depends onthe supply of moneyTotal supply of money equals total value ofoutputChanges in supply of money causesproportionate change in price level
    9. 9. Goods Market EquilibriumSaving equals InvestmentSaving & Investment both Are the function ofinterest rateIf Interest Rate is high there will be more savingand less investment
    10. 10. Criticism Underemployment situation Money not neutral Refutation of wage cut
    11. 11. State intervention is essential Over production is possible Refutation of say’s lawLong run analysis unrealistic

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