Classical Economics and Its Assumptions Flashcards

1
Q

What is Classical Economics?

A

Classical Economics is a school of thought emphasizing free markets, competition, and minimal government intervention.

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2
Q

Name key figures in Classical Economics.

A

Adam Smith, David Ricardo, and John Stuart Mill.

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3
Q

What is Say’s Law?

A

“Supply creates its own demand,” meaning production inherently generates the demand needed to purchase goods.

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4
Q

Explain the Saving-Investment Equality assumption.

A

Savings automatically equal investments through flexible interest rates.

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5
Q

What does the assumption of flexible prices mean?

A

Prices and wages adjust freely to changes in supply and demand, ensuring market equilibrium.

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6
Q

Highlight one major principle of Classical Economics.

A

The idea of self-regulating markets, where competition ensures efficiency and growth.

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7
Q

What is the Classical Economic Model based on?

A

The model is based on assumptions like full employment, rational behavior, and flexible prices.

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8
Q

How does the Classical model view government intervention?

A

It advocates minimal government intervention, believing markets are self-correcting.

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9
Q

What are the mechanisms of the Classical model?

A

Flexible wages and prices, Say’s Law, and the invisible hand driving market equilibrium.

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10
Q

How did Keynes criticize Classical assumptions?

A

Keynes argued that markets don’t always self-correct, citing sticky wages, savings imbalances, and inadequate demand.

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