given an assumption of the classical theory of employment
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The classical theory of employment is based on the assumption of flexibility of wages, interest and prices. This means that wage rate, interest rate and price level change in their respective markets according to the forces of demand and supply.
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The classical economists believed that there was always full employment in the economy. In case of unemployment, a general cut in money wages would take the economy to the full employment level. This argument is based on the assumption that there is a direct and proportional relation between money wages and real wages.
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