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Macro Economics - Classical Theory - Class 2 - Froyen (Chapter 3)

In this video, I have explained the Classical system of Macro Economic School. The classical system was itself a revolution against the mercantilist system of the 17th Century. The key features of Classical system are : 1. Real factors determine the growth of a nation & its wealth - an argument that also has a significant impact on short-run implications 2. Money just has a transactional role in the economy - even in short run. Nominal factors have no impact on real factors. 3. Laissez-faire - There should not be any govt intervention in the market unless the market will fail without it 4. Markets clear & there is perfect information with all agents 5. Labour demand & Labour supply are key variables in the determination of employment & in short run production only depends on the employment of labour. Labour demand of a firm is the same as MPN in the case of PC & labour supply curve is derived from the tradeoff between labour & leisure that an individual does. 6. Employment, output & real wages are determined endogenously. exogenous variables will impact the system if they can have an impact on labor market which can then impact employment & output. We observe that changes in prices (nominal factor) will lead to increase in money wages by the same quantum & has no impact on any real variable. This topic is being taught for GE semester 2 macro economics course - however students of economics hons & UPSC , IES students also may find it useful for a detailed clarity on this topic. Please write your reviews in the comments section & let me know what are your other macro blues that you would like a video on. Best Wishes The Pink Professor Siddharth Rathore Assistant Professor Department of Economics Gargi College University of Delhi