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In the classical tradition before Keynes, the dominant view was that
AMarket prices have no role in allocation
BThe economy could remain in long-lasting unemployment
CAll willing labour finds employment and all factories work at full capacity
DThe government must always manage demand
Answer & Solution
Correct answer: C. All willing labour finds employment and all factories work at full capacity
Classical economists held that markets, left alone, ensure full employment and full capacity utilisation. The Great Depression's persistent mass unemployment contradicted this and spurred Keynesian macroeconomics.
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