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What is Say's Law and how does it relate to macroeconomics?

Economics Dec 14, 2020

What is Say's Law and how does it relate to macroeconomics?

Expert Solution

Say's law can be described as the classical assumption upon which the classical theory was developed and bases argument. Its relation to macroeconomics is in such a way that it's a supply-side economy and it states that supply leads to the creation of its own demand in that, in the event that there is an increase in supply, automatically there will be a surge in the factor of production used eventually leading to more income generation in the economy and as we all know, more income clearly shows that there will be more demand.

Say's law states that when a person produces a good or a service, they get paid for the same work, and thus from the pay they have the ability to quench the demand for other goods and services. It indicates that demand is dependent on the production of a firm since it's the firm that produces the commodity that is demanded in the market. The firm receives payment from the consumer as the manufacturer produces the product.

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