Assumptions of the Classical Theory of Employment
1. There is the existence of full employment without inflation.
2. There is a laissez-faire capitalist economy without government interference.
3. It is a closed economy without foreign trade.
4. There is perfect competition in labour and product markets.
5. Labour is homogeneous.
6. Total output of the economy is divided between consumption and investment expenditures.
7. The quantity of money is given and money is only the medium of exchange.
8. Wages and prices are perfectly flexible.
9. There is perfect information on the part of all market participants.
10. Money wages and real wages are directly related and proportional.
11. Savings are automatically invested and equality between the two is brought about by the rate of interest
12. Capital stock and technical knowledge are given.
13. The law of diminishing returns operates in production.
14. It assumes long run.
in the economy.
*Laissez_faire*- This is a French expression which means, "leave alone." It means, there should not be government intervention.
2. There is a laissez-faire capitalist economy without government interference.
3. It is a closed economy without foreign trade.
4. There is perfect competition in labour and product markets.
5. Labour is homogeneous.
6. Total output of the economy is divided between consumption and investment expenditures.
7. The quantity of money is given and money is only the medium of exchange.
8. Wages and prices are perfectly flexible.
9. There is perfect information on the part of all market participants.
10. Money wages and real wages are directly related and proportional.
11. Savings are automatically invested and equality between the two is brought about by the rate of interest
12. Capital stock and technical knowledge are given.
13. The law of diminishing returns operates in production.
14. It assumes long run.
in the economy.
*Laissez_faire*- This is a French expression which means, "leave alone." It means, there should not be government intervention.
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