The Classical Model Of Economics

1431 WordsSep 29, 20156 Pages
For example, when a good is scarce, the prices goes up, so consumers try to avoid buying and therefore conserving the resource. Then, the suppliers want to find more of the source as to get a better profit. The reasons behind their actions are selfish, yet they benefit all of society. Smith identified that the pursuit of profit and the power of self-interest would increase motivation and result in more advances in technology. His model of capitalism was on the basis of freedom and selfishness as a motivator for society. It was also on the basis that the economy would go through recessions and expansions but fix itself. Recessions are periods in the economy in which unemployment goes up, while profits and spending goes down; a slowdown of the economy. An expansion is essentially the exact opposite. The classical model of economics states that the economy will continue to go through these fluctuations over time and will fix itself with no help, thus not needing a government to give influence. Eventually, however, The Great Depression happened, and there was no end in sight of the dramatic recession. The Great Depression was a widespread crash of the market that happened in 1929 and lasted well into the 1930’s. For a long time, no one knew why it had happened or when it would be over. Often considered capitalism’s savior, John Maynard Keynes noticed the lengthy depression and realized that something was causing it to be stuck. He thought that the economy was not going to pick
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