4:43 AM
Assumptions
to justify the classical thoughts
1. The work of Government is to overlook social welfare
not the market, laissez free economy exists in the market.
2. Market is completely free from inflation. It is
because prices are flexible and therefore quick to adjust the demand.
Possibility of inflation is there.
3. The economy is a closed economy. There is no foreign
sector participation in the economy.
4. There is always savings investment equity. Savings can
not exceed investment and vice versa. But still if there is any mismatch in
savings and investments then interest rates are there to match them. Interest
is the reward of savings. High interest leads to high investment
5. There is always income expenditure equity.
6. Capital and technical know how is always given in the
economy.
7. Full employment is a normal condition of the economy.
8. The nature of the market is perfectly competitive and
perfect competition in labour market.
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