Classical Macroeconomic Report
Introduction
The term classical macroeconomic model is relatively recent, thanks to the use of
For the first time by the economist John Maynard Keynes, starting in the thirties of the twentieth century, in his famous book (Theory
General employment interest and money) Keynes collected in the term (classical model) all the works and ideas
The economic projected on the macro economy that emerged at the beginning of the eighteenth century
Introduction to macroeconomic analysis in the classical model
The classical model refers to the system of economic analysis that was established in Britain and the United States of America
From the emergence of the economist David Ricardo until the thirties of the twentieth century and this model does not refer to
An integrated theory in the strict sense because, despite the existence of many and divided ideas, as previously mentioned in his writings
The classical and neo-classical economists concerned the equilibrium level of aggregate output and the volume of employment, but none of them
It clarifies the basic factors that determine these variables, and therefore none of them showed an integrated theory in the analysis
Macroeconomic
The foundations and assumptions of the classical model
The classical model is based on a set of principles and assumptions that make up the classical theory of
The overall balance is the most important:-
1- The economy is always in a state of equilibrium, meaning that all factors of production are fully employed, and therefore there is no unemployment
mandatory
2- Economic freedom and non-interference of the state in economic activity, according to Smith’s basic principle (let him
works let it pass)
3- Economic guidance and the principle of certainty, meaning that all economic agents act according to economic guidance
and certainty through prior knowledge of market conditions
4- The availability of conditions for free and complete competition in the markets for final goods and services and the services of the factors of production, which
It means the inability of sellers of goods and services to control prices, as sellers are recipients of prices and cannot
Rather, the interactions of market forces (supply and demand) determine prices and wages
5- The law of the port is also called (Say) after the French scientist Jean-Baptiste Say, which states that the offer
It always creates demand equal to it and therefore the economy never knows an excess of production and therefore aggregate supply
It is the basis of macroeconomic analysis and aggregate demand always tends to equal aggregate supply
6- Full price elasticity Classical thought is based on the hypothesis of full price elasticity
7- The short period in the sense of the analysis in the short-term period (the classic short-term model)
Analysis Methodology in the Classical Model
The analysis in the classical model is based on a special methodology that relies on the law of "Leon and Rass" and the idea of duality
Economic (real/cash)
1- Walras’ law:
This law states that markets are interconnected, so it is impossible for a market to be out of equilibrium if other markets are in
A state of equilibrium projecting over the four markets This means that if the markets for labor, goods, services and money are in equilibrium
Inevitably, the capital market will be in a state of equilibrium. This law allows us to narrow the study of the classical model to three
Markets The fourth market will inevitably be balanced if the first three markets are in equilibrium. For this reason, we will look for balance in
Labor markets goods, services and money
2- Analytical dichotomy (Duality: real/critical)
This law states that markets are interconnected, so it is impossible for a market to be out of equilibrium if other markets are in
A state of equilibrium projecting over the four markets, this means that if the markets for labor, goods, services and money are in equilibrium
Inevitably, the capital market will be in a state of equilibrium. This law allows us to narrow the study of the classical model to three
Markets The fourth market will inevitably be balanced if the first three markets are in equilibrium. That is why we will look for balance in
Labor markets goods, services and money
Real sector equilibrium in the classical model
The general equilibrium is achieved according to the classical model in two stages, the first and the real sector equilibrium is achieved only
The second is that the real sector is joined to the monetary sector. The classic model that seeks to determine the level of equilibrium
Macroeconomics is derived from microeconomic theory and precisely from market analysis. This analysis is concerned with the labor market
The market for goods and services is determined by the level of production and the level of use, according to the classic, by the interaction of demand for elements
Production issued by producers according to the principle of maximizing profit, and the presentation of these elements by families, according to the principle of maximizing profits
Utility (income maximization). Independently of this, the equilibrium general price level in the money market is determined
Condition to return to equilibrium
The classical postulate that the general state of equilibrium can be achieved when the level of equilibrium income reaches
The full employment level, that is, Ye = Yf, while the special case is that the equilibrium income is greater than
Or less than the full employment level where wages and prices can be changed by monetary policy
To return to full employment, while Keynes considers that the general case is that the equilibrium income is either higher than
or less than the full-employment level Ye> Yf or Ye < Yf In the special case it is
The equilibrium level of income at the full-employment level where income is changed by fiscal policy
As a result of the multiplier, the equilibrium income increases and it approaches the level of full employment
Sources
52, 51, Macroeconomics research for Dr. Ibn Al-Hajj Jalloul Yassin, Ibn Khaldun University, p. 50
Advanced Macroeconomics book by Professor Dr. Farouk bin Saleh, King Abdulaziz University
