Classical Theory Of Income And Employment

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What is income and employment? Income and employment theory, a concept of economic analysis concerned with the relative levels of output, employment, and prices in an economy. It is the basic concept through which governments get help to make policies of any countries. Two important theories of income and employment 1. Classical Theory of Income and Employment 2. Keynesian Theory of Income and Employment 1. Classical Theory of Income and Employment: The theory is ascribed to early Classical economists like Adam Smith, Ricardo, and Malthus and neo-classical like Marshall, Pigou and Robbins. They believe that: i) An economy, as a whole, always functions at the level of full employment: i.e., full employment of labor and other resources .Full employment level of output of goods and services is the largest output that the economy is capable of producing when all its resources are fully employed. Full employment is regarded as a normal situation, yet there could be a temporary unemployment. If at all there is unemployment, it must be a temporary one and it will be cured automatically through free play of economic forces. Classical behave that aggregate supply would always be at full employment level which is based on two assumptions, namely Say’s Law of Market and Wage-price flexibility as explained below. ii) Supply creates its own demand: ADVERTISEMENTS: Classical theory of employment is based on ‘Say’s Law of market’ which states that ‘supply creates its own demand’. This
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