Distinguish the short run, when some input prices are fixed, from the long run, when flexible wages and prices support full-employment adjustment.
Classical economists believe that the economy moves toward full employment because
government spending supplements private investment to keep aggregate demand in balance with aggregate supply
households spend all of their disposable income to purchase the full-employment output
wages and prices are flexible
private investment is constant and independent of national income
the money supply grows at a constant rate to generate sufficient demand to purchase the full-employment output
C