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Chapter 24: Q. 58 (page 603)

Are Say鈥檚 law and Keynes鈥� law necessarily mutually exclusive?

Short Answer

Expert verified

Say's law and Keynesian law aren't mutually exclusive, but they apply to distinct periods of time.

Step by step solution

01

Step1. Introduction

According to Say's Law, supply produces its own demand.

According to Keynes' Law, demand creates its own supply.

02

Step2. Explanation

In the long run, Say's law, which is demand oriented, is applicable. Keynesian legislation, on the other hand, is supply-oriented and only applies for a short period of time.

In the long run, the items cannot be overproduced for an extended period of time. As a result, manufacturers will be hesitant to overproduce items. They also generate the purchasing power to purchase other items. As a result, in the long run, supply produces its own demand.

The term "short-run" refers to a period when businesses do not have the resources to meet demand. They have limited resources and can only improve output by a little amount. Producers are unable to enhance their output by constructing new facilities, plants, or machines. Similarly, if demand falls, producers will be able to lower their output. As a result, the Keynesian law "demand produces its own supply" holds true in the short run.

As a result, says law and Keynesian law are not mutually exclusive, but rather mutually reliant.

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Most popular questions from this chapter

How is cyclical unemployment illustrated in an AD/AS model?

Review the problem in the Work It Out titled

"Interpreting the AD/AS Model." Like the information provided in that feature, Table 24.2shows information on aggregate supply, aggregate demand, and the price

level for the imaginary country of Xurbia.

a. Plot the AD/AS diagram from the data. Identify

the equilibrium.

b. Imagine that, as a result of a government tax

cut, aggregate demand becomes higher by 50at

every price level. Identify the new equilibrium.

c. How will the new equilibrium alter output? How

will it alter the price level? What do you think

will happen to employment?

The short-run aggregate supply curve was constructed assuming that as the price of outputs increases, the price of inputs stays the same. How would an increase in the prices of important inputs, like energy, affect aggregate supply?

What is the intermediate zone of the SRAS curve? Will a rise in output be accompanied by a rise or a fall in the price level in this zone?

In your view, is the economy currently operating in the Keynesian, intermediate or neoclassical portion of the economy鈥檚 aggregate supply curve?

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