Question

1.Explain the basic assumptions of the classical school of thought that dominated
macroeconomic thinking before the Great Depression, and tell why the severity of the
Depression struck a major blow to this view.
(4)

Answer 1

Answer:

Classical economic thought stressed the ability of the economy to achieve what we now call its potential output in the long run.

Explanation:

There were some basic assumptions of the classical school of thoughts-

Laissez faire policy (government should less intervene in the economy); Neutrality of Money; Economy remains in equilibrium in long run at full employment; and Direct relationship between the supply of labor and the wage rate.

All agents are assumed to maximize utility on the basis of rational expectations. At any one time, the economy is assumed to have a unique equilibrium at full employment or potential output achieved through price and wage adjustment.

There are considered to be five major principles of the classical school of criminology. They include rationality, hedonism, punishment, human rights, and due process.

The classical school of thought was premised on the idea that people have free will in making decisions, and that punishment can be a deterrent for crime, so long as the punishment is proportional, fits the crime, and is carried out promptly.

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