Question

1. What is Say's law? Why is it relevant for business cycle research? Is

Say's law true in practice? Discuss.

Answer 1

Say's law of markets was developed by a French classical economist named Jean Baptiste Say.It was introduced in the year 1803. His theories tells about how a society creates its wealth and the nature of society's economic activity. It is a form of classical economics and it implies that the ability to produce and thereby generating income is based on the ability to produce. For a buyer to buy something he should first produce something to sell that means first he should have the ability to produce something and earn income from that afeter that only he can buy something.Thus the source of demand is production and it is not the money.

Thus Say implies that the key to economic growth and prosperity is production. Thus the government should encourage more production activities rather than promoting consumption

The main implications of Say's law of markets are If no one runs their money balances up or down then there is no hoarding or dishoarding of money ,then all the incomes that are not fully consumed are saved. all the savings are invested and the incomes are spent and there is no overproduction or underproduction in general and there is full employment.

The main conclusions of Say's Law are lack of clarity over what is always true and what is true in equilibrium, the many discussions of crises and inflations makes it clear thar the classicals felt money could be a significant disturbing cause , tendency to equilibrium at FE level of output .

athe Say;s law is very important all the economists have been arguing about this for more than 200 years..This law is true in case of barter economy