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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

An economist who believes that the economy is self-regulating is more likely to advocate laissez-faire than one who believes that the economy is inherently unstable. Do you agree or disagree? Explain your answer.

To determine

The advocates of the laissez faire and the self regulation of the economy.

Explanation

According to the classical economists, the economy is always self regulating and does not need any intervention of the government to control its activities other than providing the military support. Thus, they demanded the Laissez Faire economy where the economic transactions of the economy are free from the government regulations, tariffs, and interventions. The self regulating economy would be having quick prices and wages adjustment. This is because the self-regulating economy adjusts the employment and the output through the changes in the prices and the wages of the economy.

The higher prices increase the output and thus lead to more employment in the economy and the lower prices lead to the inverse. Thus, by saying that an economy is self regulating, it already proves that the economy has a quick price and wage adjustment mechanism. Thus, both the self-adjusting economy as well as the economy with quick price and wage adjustments conveys the same idea about the economy...

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