Classical Economic View

ACCA - F1   ACCOUNTANT  IN  BUSINESS

Global economic environment for multinational (national) companies are the sets of national economic environment where they operate. International allies, treaty and policies regarding PESTEL environment are global economic factors. E.g. European Union, WTO members implement General Agreement on Tariffs and Trade (GATT). Multinational companies move from one country to another in search of political stability, raw material, cheap labor, knowledge and market.

National Economic studies combined behaviour of population of a nation and the government's public policy. It represents nation's (PESTEL) cultural composition, political situation, legal structure, economic growth and technological adaptation.

Managerial macro-economics is the study of Classical view (do nothing), Keynesianism (demand side) and Monetarism (Supply side).

Classical view: Classical economics view markets as incredibly powerful and efficient mechanisms that could not be improved upon by any intervention; as a consequence, they strongly urged laissez-faire policy by the government – that the government should leave the economy alone and let it work properly. Economy is capable of achieving the natural level of Gross Development Product (GDP), which is the real GDP that is obtained when the economy's resources are fully employed. It is based on two firmly held beliefs. (1) Say's Law states economy is always capable of demanding all of the output that workers and firms choose to produce i.e. supply creates its own demand (2) Flexible interest rates, wages and prices stands to justify Say's Law. I.e. in free economy if, saving increases interest rate decreases and investment increases and if saving decreased interest rate increases and investment decreases. Or if, expenses is not sufficient to purchase all of the production, there will be cutback in production prices and wages, reducing producers costs and adjusting the supply sufficient to consume. Classical economic assumes that (market is highly competitive) economy operates at full employment most of the time and any unemployment in economy is voluntary.

Background to the modern Period 1900-1945