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International Journal of Economics & Management Sciences

ISSN: 2162-6359

Open Access

Classical Economics

Equilibrium was ensured in the labour market by movements in wages and in the capital market by changes in the rate of interest. The interest rate ensured that total savings in an economy were equal to total investment. In disequilibrium, higher interest rates encouraged more saving and less investment, and lower rates meant less saving and more investment. When the demand for labour rose or fell, wages would also rise or fall to keep the workforce at full employment.
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