The term "classical" refers to an economic theory which states that over a relatively short period of time, wages and prices will adjust quickly to bring the economy back to full employment.

Question

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The classical economic theory believes in the self-regulating nature of the market, stating that labor and product markets operate efficiently, and any short-term disequilibrium will be corrected in the long run through the price mechanism. Hence, wages and prices will adjust quickly to restore full employment in the economy.

The Term "Classical" Refers to an Economic Theory Which States