Question

What was the Classical Model answer to the Great Depression?

Answer 1

Answer - The classical model has favoured the free movement of prices and wages in the economy. It stated that the economy is self adjusting unlike the Keynesian model stating for the need for government intervention. Hence , in depression when the economy was in the bad times , the prices and wages will fall freely in the downward direction. Downward prices will stimulate demand and downward wages will lead to lower cost of production thus increasing the supply in the economy . This is the answer to Great depression as per Classical model.