a Power Point presentation on Classical Theory of Economics

1. CLASSICAL THEORY OF
ECONOMICS
Prepared By – Avijit Palit

2. What is Macroeconomics?
Macroeconomics is a branch of economics dealing with
the performance, structure, behavior, and decision-
making of the whole economy. This includes a
national, regional, or global economy. With
microeconomics, macroeconomics is one of the two
most general fields in economics.

3. Classical Theory of Economics
A theory of economics, especially directed toward
macroeconomics, based on the unrestricted workings
of markets and the pursuit of individual self
interests. Classical economics relies on three key
assumptions--flexible prices, Say's law, and saving-
investment equality--in the analysis of
macroeconomics.

4. History of Classical Theory of Economics
Classical economics can trace its roots to Adam Smith
in 1776. In The Wealth of Nations Adam Smith
presented a comprehensive analysis of economic
phenomena based on the notions of free markets
and actions guided by individual self interests in
a laissez faire environment.

5. Three Key Assumptions
 Flexible Prices.
 Say's Law.
 Saving-Investment Equality.

6. A Perfect World…
 Efficiency.
 Full Employment.

7. Say's Law
According to Say's Law, when an economy produces a
certain level of real GDP, it also generates the
income needed to purchase that level of real GDP.
In other words, the economy is always capable of
demanding all of the output that its workers and
firms choose to produce. Hence, the economy is
always capable of achieving the natural level of
real GDP.

8. Contrast between Classical and Keynesian Economics
 Unemployment.
 Says Law of Market.
 Equality between Saving and Investment.
 Money and Prices.

9. Contd…
 Demand for Money.
 Short and Long Run Analysis.
 Role of State in Achieving High Level of Income and
Employment.
 General versus Special Theory