Question

3. What are the major difference between the assumption made by Say and those made by Keynes?

Answer 1

3.

Say took the assumption that supply will creates its demand, but Keynes reversed it and said that demand creates its own supply. Say proposed that whatever is produced, will be absorbed by the economy. Though, Keynes thought differently and stressed that firms should produce what is demanded in the economy.

According to the Say, wages and prices are flexible in the short run and it will adjust to help economy maintain the full employment level. Here, Keynes came up with the different assumption that wages and price are sticky in the short run and people don’t spend what they earn. So, government intervention is necessary to pull the economy out of the recession. The focus was upon the discretion fiscal policy and monetary policy as per the Keynes assumptions. But, Say favored the least government intervention and believed that economy will recover itself with its inherent balancing forces.