1. Say's law of market is the core of the classical theory of employment.
2. J.B. Say, a French Economist and an industrialist was influenced by Adam Smith and David Ricardo.
3. Say's law of market is "Supply creates its own Demand"
4. There cannot be general over production or unemployment.
5. According to Say, "When goods are produced by firms, they pay rewards to the factors of production. The households after receiving rewards for the factors of production, spend the amount on buying goods and services produced by them. Therefore, each product produced in the economy creates demand equal to its value in the market.
6. For the economy as a whole, total production equals total income.

1. There is no single theory which could be labelled as classical theory of employment.
2. The Classical theory is composed of different views of classical economists on the issue of income and employment in the economy.
3. Since the publication of Adam Smith's book Wealth of Nations (1776), the classical theory was developed by David Ricardo, J.S. Mill, J.B. Say and A.C. Pigou.
4. Classical economists assumed full employment without inflation in the long period.
5. They also assumed that wages and prices of goods were flexible and the competitive market existed in the economy.

i. Whenever resources are unemployed there is always some sort of waste.
ii. In the case of unemployment it manifests itself in the potential production of goods and services irretrievably lost.
iii. There are also other costs such as increased burdens to taxpayers to fund unemployment compensation programs and the individual cost in terms of a loss of self esteem and dignit

i. This may be possible if the number of new entrants into the labor force is increasing at a greater rate than the number of people who are becoming unemployed.
ii. Since the unemployment rate is a ratio and the numerator is growing more slowly than the denominator then the unemployment rate will fall.

1. In the Keynesian model, output is determined mainly by aggregate demand.
2. The aggregate demand is the amount of money which entrepreneurs expect to get by selling the output produced by the number of labourers employed.
Aggregate demand has the following four components:
1. Consumption demand
2. Investment demand
3. Government expenditure and
4. Net Export (export – import)

i. Figure explains that aggregate demand price increases or decreases with an increase or decrease in the volume of employment.
ii. Aggregate demand curve increases at an increasing rate in the beginning and then increases at a decreasing rate.

(i) John Maynard Keynes was one of the most influential economists of the 20th century.
(ii) He was born in Cambridge in1883. In addition to his work as an economist he held position as civil servant a director of the Bank of England, and leader of British delegation of negotiators at the Bretton Woods conference at points in his career.
(iii)  Economic theory based on his idea is known as Keynesian economics, and remain highly influential today, particularly in the field of macroeconomics.

1. The statement that supply creates own demand or equivalently that the aggregate in investment equals the aggregate saving always holds good in the ex post sense since it is simply an accounting identity.
2. Say’s law of markets, however, states that these two are equal in ex ante sense, i.e the total quantity which people produce i.e., aggregate supply must be equal to the total quantity which they plan to buy i.e., aggregate demand.

The components of aggregate supply are,
(i) Aggregate (desired) consumption expenditure (C).
(ii) Aggregate (desired) private savings (S).
(iii) Net tax payments (T) (Total tax payment to be received by the government minus transfer payments, subsidy and interest payments to be incurred by the government) and
(iv) Personal (desired) transfer payments to the foreigners (Rf) (eg. Donations to international relief efforts)

The following are the criticisms against Say's law:
(i) According to Keynes, supply does not create its demand. It is not applicable where demand does not increase as much as production increases.
(ii) Automatic adjustment process will not remove unemployment. Unemployment can be removed by increase in the rate of investment.
(iii) Money is not neutral. Individuals hold money for unforeseen contingencies while businessmen keep cash reserve for future activities.

The aggregate demand is the amount of money which entrepreneurs expect to get by selling the output produced by the number of labourers employed. Therefore, it is the expected income or revenue from the sale of output at different levels of employment.
Aggregate demand has the following four components:
(i) Consumption demand
(ii) Investment demand
(iii) Government expenditure and
(iv) Net Export (export - import)

(i) Effective demand denotes money actually spent by the people on products of industry.
(ii) The money which entrepreneurs receive is paid in the form of rent, wages, interest and profit.
(iii) Therefore effective demand equals national income.
(iv) An increase in the aggregate effective demand would increase the level of employment. A decline in total effective demand would lead to unemployment. Therefore,
(v) Thus the total employment of a country can be determined with the help of total demand of a country.

(i) The classical theory of employment is composed of different views of classical economists on the issue of income and employment in the economy.
(ii) Classical economists assumed that the economy operates as the live of full employment without inflation in the long period.
(iii) They also assumed that wages and prices of goods were flexible and the competitive market existed in the economy.