The Classical model, as outlined in Chapter 3, shows an economy in which permanent unemployment is not possible. With the mechanism of falling prices all markets, including labour, will clear, and hence any temporary unemployment will be corrected. The economy will tend naturally towards that level of income and output necessary to keep the workforce in a state of full employment. If temporary unemployment occurs, then wages will fall and Say’s Law will operate to return the economy back to the full employment position.
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