1.
Classical theory of
employment
Bhawna
Rajora
117510

2.
The classical economists
believed in the existence of
full employment in the
economy. To them, full
employment was a normal
situation and any deviation
from this regarded as
something abnormal. the
tendency of the economic
systems is to automatically
provide full employment.

3.
Full
ASSUMPTIONS employment
Closed
Homogeneous
economy
Laissez faire Barter system
Self
adjustment

4.
Say’s law of market
Core of classical theory
Supply creates its own demand
Overproduction is not possible

5.
Determination of output & employment
O/P & employment determined through production funtion &
Demand & supply of labor
Precise relation b/w total o/p & amount of employment i.e. no. of
worker
Diminishing Marginal operates

6.
Wage Price Flexibility
Classical economist believed in full employment
situation
In case of unemployment, a general wage cut in
money wages would take
the economy to the full employment situation

7.
Labor Market Equilibrium
Demand & supply of labour is function of wage
rate
Demand for labour is decreasing function of
wage rate
Supply of labour is increasing function of wage
rate

8.
Money Market Equilibrium
General Price Level in the economy depends on
the supply of money
Total supply of money equals total value of
output
Changes in supply of money causes
proportionate change in price level

9.
Goods Market Equilibrium
Saving equals Investment
Saving & Investment both Are the function of
interest rate
If Interest Rate is high there will be more saving
and less investment

10.
Criticism
Underemployment situation
Money not neutral
Refutation of wage cut

11.
State intervention is essential
Over production is possible
Refutation of say’s law
Long run analysis unrealistic