Classical economic theory dominated the study of economics from the late 1700s until the 1930s when the Keynesian "revolution" began.
Biz/ed, a website that discusses many issues related to economics, provides a short explanation of classical economic theory. Access the "(Neo-)Classical Theory - Theories" web page in order to gain an understanding of classical economic theory.

1. Classical Economics believes that in order for an economy to be prosperous, _________  ____________ must exist. 
   
   
2. Classical Economics assumes that, left to itself, the economy would tend to operate at _______  ______________. 
   
   
3. Say's Law is a main theory within classical economics. Say's Law states that: ____________________________________________.
   
   
4. If excessive unemployment exists, Classical economists believe there will be a _______ __ ____ _______ _______ which will cause an ____________ _________ ___ _______ , which in turn will bring the economy back to ____________ ____________.
   
   
5. According to classical economists, in the market for loanable funds (the money market) __________ ________ will bring ____________ and ____________ into equilibrium.
   
   
6. According to Classical economics the main roles of government should be to ________ ____ ______ ____________ ___ ______ and to _______ __ _________ ________. This is also called a "________ ______" approach to government.

The Biz/ed website also discusses Keynesian economics and its beliefs.
 

1. According to Keynes, an economy could be in quilibrium even if ____________ existed.
   
   
2. Unlike the classicalists, Keynes believed in ___________ ____________ by the government.
   
   
3. Classicalist believed that flexible ________ would bring the economy to full employment. Keynes argued that a disequilibrium between ____________ and ___________ would cause a change in the level of output.

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Last updated October 11, 2003

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