Macro Unit 3, Question 10- Recessionary Gap and Classical Economists

The video discusses the concept of a recessionary gap, where real output is below full employment levels, leading to high unemployment. It presents two main economic schools of thought: Keynesian, which advocates for government intervention through fiscal or monetary policy, and classical, which trusts market forces to self-correct. The video explains how flexible wages and prices can help restore equilibrium. It concludes by suggesting further exploration of economic theories through resources like the Keynes vs Hayek rap videos.

What is the classical economists' perspective on how market forces can resolve a recessionary gap?

What happens to wages and prices in the market when there is a recessionary gap?