A basic feature of the classical system of self-regulating markets was that

A) overproduction and unemployment would cause prices and wage rates to increase.
B) flexible wages and prices would eliminate unemployment and overproduction.
C) overproduction would never occur.
D) an increase in saving would cause an increase in the interest rate and a decrease in investment spending.
E) rising unemployment caused wage rates to rise,which reduced the demand for labor.

Question

Alsopher Chang · Accepted Answer

Final Answer : B, Explanation :  The classical system believed that flexible wages and prices would eliminate unemployment and overproduction. As wage rates decreased, more firms would hire workers, and as prices decreased, more consumers would buy goods, leading to a balance between supply and demand. This was believed to be a self-regulating mechanism that would ensure the economy would always return to equilibrium.

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