In Classical Theory Full Employment Is Possible,what You Say?


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Muhammad Abdullah786 Profile
The capitalism operates under price mechanism and motive of self-interest. The trade cycles are recurring features of our economies where there is either abundance or shortages of goods. Here we find pessimism as well as over-optimism. Here the resources are misallocated, incomes are unevenly distributed, and there is difference social benefits and private and there is the role of price distortions and externalities. In such circumstances our economies will hardly move towards full employment.

The above discussion reveals that quite against classical, Keynes and his followers are of the view that in order to remove unemployment or for the sake of economic affairs, as the traffic signals are required to avoid economic crisis. Thus according to Keynes, to remove unemployment government should start public workers programme. To run these program governments should print new money. With such new notes the unemployed can be provided with jobs. Then such people will make expenditures in order to purchase the goods they require. In this way the goods will start selling out. Hence both unemployment and depression will be washed out.
But this will be remembered that with new notes inflation will not be generated so long as there is unemployment in the economy. It means that in the Keynesian economists' inflation starts only when economy crosses the level of full employment.

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