Classical theory of income and employment pdf
Classical Theory of Employment
The Classical economists disagreed with the Mercantilist view who emphasized State interference and money factors, for the determination of real variables like output and employment. Production function shows the relationship between input and output. Assume there are two inputs—Labour and capital. Due to the assumption of short-run, output will be a function of Labour N with capital constant K , that is, output can be increased only by increasing the variable factor N with fixed factor K constant. With the help of these two functions output and employment is determined. As capital is constant in the short-run, output will change only with change in the labour input.
In this article we will discuss about:- 1. Propositions of Classical Theory of Employment 2. Assumptions of the Theory 3. Assumptions of Full Employment 4. Explanation of Classical Theory of Employment 5.
In the classical model the equilibrium levels of income and employment were supposed to be determined largely in the labour market. The demand curve for labour shows the relationship between the real wage equal to the value of the marginal product of labour in a competitive economy and the demand for labour by employers.
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