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Do neoclassical economists believe in Keynes’ law or Say’s law?

Short Answer

Expert verified

Neo-classical economists believed in Say's law.

Step by step solution

01

Concept introduction

Neoclassical economists believe that the primary aim of consumers is to increase self-fulfillment.

Say’s law of market states that the supply of the goods in the market creates their own demand. According to Keynes' law, demand generates its own supply.

02

Explanation

Neoclassical economists were those who believed in Say's law, which asserted full employment in the long run. According to Say's law, supply and demand will adjust, resulting in a price increase or decrease. He claimed that markets should function without government intervention. According to Keynes' law, demand generates its own supply. He contended that due to a lack of aggregate demand, the economy is frequently inefficient, producing less than its potential. When there is a scarcity of demand, businesses are less inclined to create.

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Most popular questions from this chapter

The imaginary country of Harris Island has the aggregate supply and aggregate demand curves as Table 11.3 shows.

Price Level
AD
AS
100
700
200
120
600
325
140
500
500
160
400
570
180
300
620

a. Plot the AD/AS diagram. Identify the equilibrium. b. Would you expect unemployment in this economy to be relatively high or low?

c. Would you expect concern about inflation in this economy to be relatively high or low?

d. Imagine that consumers begin to lose confidence about the state of the economy, and so AD becomes lower by 275 at every price level. Identify the new aggregate equilibrium.

e. How will the shift in AD affect the original output, price level, and employment?

How is long-term growth illustrated in an AD/AS model?

Suppose concerns about the size of the federal budget deficit lead the U.S. Congress to cut all funding for research and development for ten years. Assuming this has an impact on technology growth, what does the AD/AS model predict would be the likely effect on equilibrium GDP and the price level?

Review the problem in the Work It Out titled "Interpreting the AD/AS Model." Like the information provided in that feature, Table 11.2 shows information on aggregate supply, aggregate demand, and the price level for the imaginary country of Xurbia.

Price Level
AD
AS
110
700
600
120
690
640
130
680
680
140
670
720
150
660
740
160
650
760
170
640
770

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 50 at 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?

Why would an economist choose either the neoclassical perspective or the Keynesian perspective, but not both?

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