Question

Q1. What did the classical economists suggest that government to reduce unemployment?

Q2. Consider each of the following and determine whether the person is employed, unemployed,

or not in the labour force. Indicate the employment status in each case:

a. A 14-year-old girl delivers newspapers early in the morning.

b. A 22-year-old university graduate is out of work but has given up searching for a job

because she believes that none is currently available.

c. A factory worker is temporarily laid off but will be recalled within two or three days.

d. The closure of a store causes the manager to lose her job. She is now looking for work.

e. A man takes night class at college but works during the day.

Answer 1

Ans - 1) The basic principle of classical school of thought is that the economy is self regulating i.e. the economy is capable to achieve natural level of GDP where resources are fully employed. Unemployment in an economy occurs when the real wages are below or above the equilibrium point . Classicals were of the view that wages are flexible and would adjust automatically in case of any diversion from equilibrium. They advised the govt not to intervene as wages would automatically adjust(due to flexibility) and the unemployment would be eliminated on its own by market forces. However , they considered that there is a rate of voluntary unemployment in the economy which would always be there as some people will not accept the market wage rate because they would think that they are very low . Hence these people who do not accept the market wage rate choose to be unemployed voluntarily.