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According to the classical macroeconomic theory, what occurs?

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Final answer:

Classical macroeconomic theory proposes that in the long term, the economy self-corrects to revolve around potential GDP and natural unemployment. It suggests that wages and prices will flexibly adjust, and emphasizes the importance of long-term growth and inflation control over short-term interventions. Neoclassical economics recommends a 'hands off' policy, in contrast to Keynesian economics, which advocates for active fiscal policies.

Step-by-step explanation:

According to the classical macroeconomic theory, certain key economic factors are predicted to occur in the long run. Primarily, the economy is expected to fluctuate around its potential GDP and natural rate of unemployment. The neoclassical building blocks suggest that (1) the potential GDP is crucial in determining the economy's size and (2) wages and prices will flexibly adjust, enabling the economy to revert to its potential GDP level of output. These adjustments imply a self-correcting economy that doesn't require aggressive short-term government interventions to maintain full employment. Conversely, neoclassical economics emphasizes the importance of long-term growth strategies and controlling inflation over short-term fluctuations such as recessions or cyclical unemployment. This point of view holds a vertical aggregate supply curve at full employment GDP, echoing a 'hands off' policy approach, contrasting with the Keynesian economics stance that supports active fiscal policy responses to deviations from full employment.

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