The Classical Theory

The Classical Theory - The Classical Theory

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The Classical Theory The fundamental principle of  the classical theory  is that the economy is self-regulating. Classical  economists maintain that the economy is always capable of achieving the natural level of real GDP  or output, which is the level of real GDP that is obtained when the economy's resources are  fully  employed.  While circumstances arise from time to time that cause the economy to fall below or to  exceed the natural level of real GDP,  self-adjustment mechanisms  exist within the market system  that work to bring the economy back to the natural level of real GDP. The classical doctrine—that the  economy is always at or near the natural level of real GDP—is based on two firmly held beliefs:  Say's Law  and the belief that prices, wages, and interest rates are flexible.  Say's Law.  According to  Say's Law
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This note was uploaded on 11/18/2011 for the course ECO 1310 taught by Professor Staff during the Fall '10 term at Texas State.

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