Aggregate Demand and Supply Essay

324 WordsAug 27, 20122 Pages
"By pursuing his own interest, he (man) frequently promotes that (good) of the society more effectually than when he really intends to promote it. I (Adam Smith) have never known much good done by those who affected to trade for the public good." - Adam Smith (1776), An excerpt from 'An Inquiry into The Nature and Causes of The Wealth of Nations (Buzzle, 2011-2012).” To understand the classical economic model you have to understand the assumptions. Some highlights of classical economics are: * “One, classical economics is based on three key assumptions--flexible prices, Say's law, and savings-investment equality. * Two, the theoretical structure of classical economics is based on a view that the macro-economy operates in aggregate according to the same basic economic principles that guide markets and other microeconomics phenomena. * Three, the economic principles of classical economics indicate that aggregated markets, especially resource markets, automatically achieve equilibrium, meaning full employmen-full employment of resources is assured. * Four, classical economics indicates that full employment is achieved and maintained without the need for government intervention and that government intervention is more likely to cause than to correct macroeconomic problems (Amos Web, 2000-2012).” The classical economic was developed by Adam Smith- It was said by scholars over 150 years the classical economic had improved “resource markets, international trade, economic development, and industrial activity (Amos Web, 2000-2012).” If we were to let classical economic run our world, it would be a world of efficiency and full employment. Efficiency- “quality between the price that buyers are willing to pay for a good and the price that sellers are willing to accept and Full Employment- “important for macroeconomics, full employment is attained
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