Review Notes - Classical Macroeconomics

- what are business cycles? What does classical macroeconomics say about business cycles?: - what is Say's law?; - how do flexible wages, prices, and interest rates ensure no unemployment?
- how do capital markets work in classical macro?: - supply of capital/demand for capital?; - why does saving = investment? (hint: flexible interest rates plays a role); - if S = I then no leakages occur and, hence, no loss of income/output due to savings.
- how do flexible wages and prices ensure that the economy is always at full employment?: - suppose that the economy is not at full employment. flexible wages/prices ensure a movement back to full employment. How?
- what does AS look like according to classical macroeconomics?
- what impact does changes in AD have on the economy?