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The classical theory proposes that all markets reequilibrate because of adjustments in prices and wages which are flexible. For instance, if an excess in the labor force or products exist, the wage or price of these will adjust to absorb the excess.
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If prices and wages are flexible, markets reequilibrate. If, for instance, many people are unemployed, firms can hire workers at lower wages; but, hiring more workers precisely reduces unemployment. |
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