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

Define exchange rate systems, Q. Define Exchange rate systems? Differen...

Q. Define Exchange rate systems? Different nations have different exchange rate systems. The most significant characteristic of an exchange rate system is to what degree the co

Describe wages and income, Q. Describe Wages and income? Remember that ...

Q. Describe Wages and income? Remember that by wage we characteristically mean what you receive for working one hour, whereas income is the total revenue from all sources over

Income increases at an average annual rate, Upon taking his first job at co...

Upon taking his first job at college your Dad earns an annual salary of $38,000 and set a goal to earn $10000 per year. If his salary increases at an average annual rate of 12% how

Important for policymakers, Why is it important for policymakers to conside...

Why is it important for policymakers to consider both the direct and indirect effects of public policies?

Money and credit, MONEY AND CREDIT  In any modern economy, the quantity...

MONEY AND CREDIT  In any modern economy, the quantity of money, aggregate volume of credit and its sectoral composition are important variables which exert significant influenc

Overnight interest rate of central banks, Overnight interest rate of Centra...

Overnight interest rate of Central banks When the central bank buys government securities, it purchases from many individuals, companies and institutions. Deposits and reserves

Equal payment amortization schedule, Assume a 5 year equal payment amortiza...

Assume a 5 year equal payment amortization schedule with an annual interest rate of 12% and annual payments. If the beginning is 8,000 then the first interest payment will be how l

Explain growth theory, Q. Explain Growth theory? The purpose of this to...

Q. Explain Growth theory? The purpose of this topic is to try to explain growth in GDP. The models in this topic are very different from the rest of the models as they use only

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