Question

Given your understanding of how the economy works from the long run, Classical perspective, present what you consider GOOD economic policy. Provide some explanations of why you consider your policy recommendations as good.

Answer 1

The economy which works from long-run Classical perspective is considered a good economic policy because the fundamental principle of classical theory is that it is self-regulating. It assumes that an economy is capable of achieving full employment level of GDP where all resources are exhausted. While circumstances do change the economic scenario but the self-adjusting mechanism of the Classical theorist which is based on Say's law that "supply creates its own demand" is believed to hold true.

Classical economists believe that prices, interest rate, and wages are flexible and help in maintaining equilibrium in labor and money markets.