Illustrate the says law, Macroeconomics

Assignment Help:

Q. Illustrate the Says Law?

With Say's Law, aggregate demand would always be equal to aggregate supply and cross model would be incorrect. 

Keynes's argument as to why Say's Law doesn't apply can be explained in the cross model. According to Say's law, supply creates its own demand. When supply increases, income increases and a higher income creates an equally large increase in demand. Firms and households are stimulated to a higher demand by cuts in real interest rates. Higher aggregate supply will lower the real interest rate and investment and consumption will increase. According to Say's Law, r will fall to the level where total increase in C and I is exactly as large as increase in aggregate supply.

According to Keynes and cross model, this won't happen. When Y increases, C will increase however not as much as Y (and I will not change at all). Aggregate demand won't increase as much as aggregate supply and Say's Law will fail.


Related Discussions:- Illustrate the says law

Trade-fdi nexus, Trade-FDI Nexus: Economic liberalization promotes bot...

Trade-FDI Nexus: Economic liberalization promotes both trade and FDI. FDI could be export-promoting, import substituting or import enhancing depending upon supply and demand f

Explain augmented saving, Augmented Saving An alternative way of determ...

Augmented Saving An alternative way of determining equilibrium  GDP  is to find the level of income where the sum of desired injections equals the sum of desired leakages. Desi

Debate between New Classical and New Keynesian economics?, Debate between N...

Debate between New Classical and New Keynesian economics?

Money, determinants of money supply

determinants of money supply

Trends in current account, Trends in current account: A  glance at  th...

Trends in current account: A  glance at  the net invisible  account suggests that its  ever-  rising  trend  from 2000-01 did not  only support  the  massive trade deficit but

Unemployment, explain the phillips curve the relationship of inflation and ...

explain the phillips curve the relationship of inflation and unemployment

Consumer price index, (Consumer Price Index)Given the following data, what ...

(Consumer Price Index)Given the following data, what was the value of the consumer price index in the base year? Calculate the annual rate of consumer price inflation in 2013 in ea

Oil revenue on agricultural productivity, please,how do i relate keynesian ...

please,how do i relate keynesian theories on fiscal policy to the topic"impact of oil revenue on agricultural productivity?

Trade in services, TRADE IN SERVICES: India had objected to  the  incl...

TRADE IN SERVICES: India had objected to  the  inclusion of  trade in services  in  the agreement for  the UR  negotiations. The  Indian negotiations continued to raise object

Expected profit or loss for the university, The enrollment in a course offe...

The enrollment in a course offered by the College of Business is random and is described by the following probability distribution: there is a 9% chance of 18 students, 22% chance

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd