Classical Economics

From Economics

Contents 1 Classical Tenents 1.1 The Model 1.2 Assumptions 2 Sources

[edit] Classical Tenents

1. Classical Theory of Employment and Output Determination (real):
2. Say's Law of Markets (real):
3. Quantity Theory of Money (nominal): Regardless of the ammount of money that is in the economy there are real underlying factors which determine the real variables.

[edit] The Model

Output is a funtion of Capital and Labor modified by some exogenously determined variable "A" or "technology."

[edit] Assumptions

1. “all economic agents (firms and households) are rational and aim to maximize their profits or utility; furthermore, they do not suffer from money illusion;
2. all markets are perfectly competitive, so that agents decide how much to buy and sell on the basis of a given set of prices which are perfectly flexible;
3. all agents have perfect knowledge of market conditions and prices before engaging in trade;
4. trade only takes place when market-clearing prices have been established in all markets, this being ensured by a fictional Walrasian auctioneer whose presence prevents false trading;
5. agents have stable expectations.” (Snowden 2005 p.38)

[edit] Sources

1. Snowdon, Brian and Howard R. Vane. 2005: Modern Macroeconomics: Its Origins, Development And Current State. Edward Elgar Publishing

This macro-stub needs improving.