1. Say's law of markets states that supply creates its own demand and that full employment is the norm in economies.
2. The document outlines the key assumptions and implications of Say's law, including that production generates income to purchase goods, saving and investment automatically equalize, and wages adjust to maintain full employment.
3. Keynes criticized Say's law for failing to account for the possibility of overproduction and unemployment, and argued that demand does not necessarily increase with supply and that intervention may be needed to stimulate demand.
In Macroeconomics Income and Employment are interchangeable terms, since in the short-run National income depends on the total volume of employment or economic activity in the country. As income and employment are synonymous the employment theory is also called income theory.
It should be clear to readers that the classical economists did not formulate any specific theory of employment as such. They only laid down certain postulates which subsequently developed as a theory.
1) Statement to Quantity Theory of Money
2) Graph illustration and Pictorial description of QTM
3) Different Approaches to QTM
4) Fisher's Transaction Approach Description
5) Assumptions of Fisher's Transaction Approach
6) Conclusion
In Macroeconomics Income and Employment are interchangeable terms, since in the short-run National income depends on the total volume of employment or economic activity in the country. As income and employment are synonymous the employment theory is also called income theory.
It should be clear to readers that the classical economists did not formulate any specific theory of employment as such. They only laid down certain postulates which subsequently developed as a theory.
1) Statement to Quantity Theory of Money
2) Graph illustration and Pictorial description of QTM
3) Different Approaches to QTM
4) Fisher's Transaction Approach Description
5) Assumptions of Fisher's Transaction Approach
6) Conclusion
here in Keynesian theory of income and employment is explained in deep so all those people who want to get keenly into this theory must at least have a look at the same as it can improve your knowledge.
Liquidity Preference Theory suggests that investors demand higher interest rates or additional premiums for medium or long-term maturities and investments. Simply put, interest rates directly indicate the price of the money.
https://efinancemanagement.com/investment-decisions/liquidity-preference-theory
here in Keynesian theory of income and employment is explained in deep so all those people who want to get keenly into this theory must at least have a look at the same as it can improve your knowledge.
Liquidity Preference Theory suggests that investors demand higher interest rates or additional premiums for medium or long-term maturities and investments. Simply put, interest rates directly indicate the price of the money.
https://efinancemanagement.com/investment-decisions/liquidity-preference-theory
It includes:
CLASSICAL THEORY OF EMPLOYMENT,
SAY’S LAW OF MARKET,
Determination of Employment and Output in the Classical Model,
Keynesian Theory of Employment,
Principle of Effective Demand, and on many more topics...
There are two major theories of employment (Classical and Keynesian Theories) in macroeconomics. This presentation seeks to provide an overview of the two major theories.
Economics in One Lesson: Wars, Governments, Price Controls and the Boom-Bust ...Graham Wright
Based on the Henry Hazlitt book, this presentation is an introduction to applied economics. Hazlitt's lesson, to consider what is unseen as well as what is seen, is applied to various situations: broken windows, wars and governments.
The market process for allocating resources is introduced, and the effects of price controls, such as the minimum wage law, on resource allocation is examined.
Finally, the One Lesson and the theory of price controls is applied to the phenomenon of the boom-bust cycle, which is explained as a necessary consequence of government manipulation of interest rates.
Tutor O-rama claims that their services will raise student SAT mat.docxwillcoxjanay
Tutor O-rama claims that their services will raise student SAT math scores at least 50 points. The average score on the math portion of the SAT is μ = 350 and σ = 35. The 100 students who completed the tutoring program had an average score of 385 points. Is the average score of 385 points significant at the 5% level? Is it significant at the 1% level? Explain why or why not.
PLEASE REWORD THESE PARAGRAPHS IN YOUR OWN WORDS. PLEASE DO NOT USE THE SAME WORDS AS IN THE PARAGRAPHS. THANKS.
· 1-According to Lisa Huddlestun, "Macroeconomics is the study of behaviors and activities of the economy as a whole, looks at such areas as the Federal Reserve System, unemployment, gross domestic product (GDP), and business cycles" (Huddlestun 2015.) The Federal Reserve System's most important attribute is the regulation of the supply of money in circulation. This is important to the economy because it influences interest rates, money available for loans, and the overall price level of the economy. Unemployment could mean a loss of income for individuals and lost production for the economy. There are three type of unemployment; frictional unemployment, cyclical unemployment, and structural unemployment. Frictional includes people that have quit their jobs or have been fired causing them to be unemployed. Cyclical is related to the economy, such as being laid off during a recession. Structural unemployment is when someone hasn't been hired because they do not have the required skills or do not live in a high employment area. The gross domestic product (GDP) is determined by total economic spending. Economic spending includes consumer, business, and government spending. Lisa states, GDP is "the market value of all final products produced in a year's time" (Huddlestun 2015.) Economic performance is measured by GDP. An increase in GDP means the economy is growing. GDP also determines if there will be inflation or not. Policy makers look at past and present GDP to formulate policies to help economic growth. If we have economic growth then we could have an increase in production of goods and services. Microeconomics according to Lisa is, "the individual components of the economy, such as costs of production, maximizing profits, and the different market structures" (Huddlestun 2015.) Businesses are the suppliers of goods and services the individual wants. Most businesses want to make a profit, or maximize their profits. The level of output must be determined to help result in the greatest profit. Cost of production has a huge part in this. There are two types of cost production; variable and fixed costs. Fixed costs are costs that do not vary with the level of output, for example a rent payment. Variable costs are cost that change with level of output, like wages and raw material.
· 2-This was a great video for the theory of supply and demand. I was able to relate particularly about the housing market as someone who was a real estate investor in 2005. I ...
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7 Economic Policy Challenging Incrementalism
Incremental and Nonincremental Policymaking
Traditionally, fiscal and monetary policies were made incrementally; that is, decision makers concentrated their attention on modest changes—increases or decreases—in existing taxing, spending, and deficit levels, as well as the money supply and interest rates. Incrementalism was especially pervasive in annual federal budget making. The president and Congress did not reconsider the value of all existing programs each year, or pay much attention to previously established expenditure levels. Rather last year’s expenditures were considered as a base of spending for each program, attractive consideration of the budget proposals focused on new items or increases over last year’s base.
But crises often force policymakers to abandon incrementalism and reach out in non-incremental directions. In economic policy, the president and Congress and the Fed are pressured to “do something” in the face of a perceived economic crisis, even if there is little consensus on what should be done, or even whether there is anything the federal government can do to resolve the crisis. As we shall see later in this chapter, the recession that began in 2008 caused policymakers to search for new policies and make dramatic changes in spending and deficit levels and to undertake unprecedented measures to prevent the collapse of financial markets and avoid a deep recession.
Fiscal and Monetary Policy
Economic policy is exercised primarily through the federal government’s fiscal policies—decisions about taxing, spending, and deficit levels—and its monetary policies—decisions about the money supply and interest rates.
Fiscal policy is made in the annual preparation of the federal budget by the president and the Office of Management and Budget, and subsequently considered by Congress in its annual appropriations bills and revisions of the tax laws. These decisions determine overall federal spending levels, as well as spending priorities among federal programs. Together with tax policy decisions (see Chapter 8), these spending decisions determine the size of the federal government’s annual deficits or surpluses.
Monetary policy is the principal responsibility of the powerful and independent Federal Reserve Board—“the Fed”—which can expand or contract the money supply through its oversight of the nation’s banking system (see “The Fed at Work” later in this chapter). Congress established the Federal Reserve System and its governing Board in 1913 and Congress could, if it wished, reduce its power or even abolish the Fed altogether. But no serious effort has ever been undertaken to do so.
Economic Theories As Policy Guides
The goals of economic policy are widely shared: growth in economic output and standards of living, full and productive employment of the nation’s work force, and stable prices with low inflation. But a variety of economic theories compete for preeminence as ways of achiev.
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Operation “Blue Star” is the only event in the history of Independent India where the state went into war with its own people. Even after about 40 years it is not clear if it was culmination of states anger over people of the region, a political game of power or start of dictatorial chapter in the democratic setup.
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For more information, visit-www.vavaclasses.com
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ESC Beyond Borders _From EU to You_ InfoPack general.pdf
1 say's law of markets
1.
2. 1/19/2015By Premraj Bhatta 2
1. Say’s Law of Markets
⎈ Say’s law of markets is the core of classical theory of
employment.
⎈ A famous French Economist Jeane Baptiste Say
enunciated the formal statement that “Supply
creates its own demand.”
⎈ It implies that the supply of goods generates
sufficient income to create demand for goods equal
to its supply.
⎈ Therefore, there is no possibility of overproduction
and unemployment in the economy.
⎈ Even if there is some unemployment in the short-
run, the economy automatically tends towards full
employment in the long-run.
1. Classical Theory of Employment
3. 1/19/2015By Premraj Bhatta 3
Assumptions of Say’s Law of Markets
⎈ There is free market economy.
⎈ No government intervention.
⎈ Automatic adjustment of economic system due
to flexibility of wages, interest and prices.
⎈ Extent of market is limitless.
⎈ Closed economy, no trade links with any other
country,
⎈ Money is only a medium of exchange.
⎈ Validity of long-run,
⎈ Optimum allocation of resources,
4. Important facts of Say’s law
⎈ Production creates Demand for goods.
With the use of inputs in production process,
income is generated. This income is distributed to the
owner of inputs which they ultimately spend on
purchasing goods for their use. This causes demand for
produced goods. This is how supply creates its own
demand.
⎈ Barter and monetized economy,
Say’s law holds good in barter economy. It is
because, goods are produced for self consumption or to
get other goods in exchange for the produce. When
people offer their produce in barter for other goods,
they create demand for the goods.
This law is also valid in monetized economy, In
this economy money is used to buy or sale goods and
services.
1/19/2015By Premraj Bhatta 4
5. 1/19/2015By Premraj Bhatta 5
The inputs used in production generate money incomes
in the form of wages, interest, rent and profits. The
incomes are spent on purchasing the goods produced.
It creates demand. It implies that if there is production,
there is income and if there is income, there is demand
for goods whose production creates income. Thus,
supply creates its own demand in monetized economy.
⎈ No general overproduction
Say’s law states that there is no general
overproduction. When there is an increase in
production, there is also increase in income of related
factors. Consequently new demand is created and there
is no general over production. General overproduction
may exist in the short-run but it is automatically
adjusted by the market forces of demand and supply in
the long-run.
6. 1/19/2015By Premraj Bhatta 6
⎈ Saving and investment equality
Generally income is spent on consumption. When
some amount of income remains unspent on consumption or
saved, overproduction may exists. But it is rate of interest
which plays important role to make a decision for both the
consumers and producers about saving and investment. How
much is to save and how much is to invest, depend on rate of
interest. The interaction for demand for and supply of saving
as a capital determines equilibrium rate of interest in market
at which the equality between saving and investment is
restored and there is no over production.
⎈ Labour Market
Labour always seek a higher wage rate but it causes a
fall in demand for labour and rise in unemployment. In a free
market economy flexible rate of wages automatically restores
full employment through the interaction of demand for and
supply of labour
7. Implications of Say’s Law
The implications of the law are as follow
⍟ Full employment in the economy
According to Say’s law there is full employment in
the economy. It is because increase in production means
increase in employment and production continues until
the full employment is reached. In such a condition
production will be maximum.
⍟ Proper utilization of resources
This law is based on full employment in the
economy. According to which the proper utilization of
idle resources are ensured which will further help to
produce more and also generate more income.
⍟ No general overproduction
There is no general overproduction and no
unemployment. Increase in production generates
income for inputs and further demand is created for the
produce.
1/19/2015By Premraj Bhatta 7
8. 1/19/2015By Premraj Bhatta 8
⍟ Self adjustment mechanism
According Say’s law the self adjustment
mechanism brings up equilibrium in different markets.
So disequilibrium is a temporary situation. In a capital
market equality between saving and investment is
restored by the flexible interest rate while in labour
market equality between demand for and supply of
labour is maintained by the wage rate.
⍟ Wage cut creates full employment
This law assumes that wage-cut helps to restore
full employment by reducing production cost and price
level and increasing demand for goods. It denies the
wage rigidity policy in the economy.
⍟ Neutral role of money
This law is based on barter system where goods
are exchanged for goods. There is also assumed that
money is just a medium of exchange; it does not affect
the production process. So the role of money is neutral.
9. 1/19/2015By Premraj Bhatta 9
Criticism of Say’s Law of Markets
Say’s law was criticized by J. M. Keynes on the
following grounds.
Supply does not create its demand
Say’s law states that supply creates its demand
but Keynes disagrees with this view. According to
Keynes in modern times, demand does not increase as
much as production increases. It is also not possible to
consumes the goods produced in domestic economy.
Self-adjustment is not possible.
Say’s law assumes that shelf-adjustment
mechanism maintains full employment in the long-run.
But according to Keynes employment can be increased
by increasing in the rate of investment not by shelf-
adjustment mechanism in the long run. Neither he was
in favor of long-run nor he believed that we are all alive
in the long run.
10. 1/19/2015By Premraj Bhatta 10
Money is not neutral.
Say’s law assumes that the role of money is
neutral and it does not effect the economic activities.
Keynes gives due important to money. According to
him, money is held for income and business motives.
Individuals hold money for unforeseen contingencies.
Businessmen hold cash in reserve for future purpose.
So money is not neutral, it affect economic activities.
Overproduction is possible.
Say’s law denies the possibility of overproduction
but Keynes is in against it. He believes that whole
factor-income is not spent. A portion of income is saved
but it is not automatically invested. Therefore, saving
and investment are always not in equality. Hence the
problems of overproduction and unemployment
remains in the economy.
11. 1/19/2015By Premraj Bhatta 11
Need of state intervention
Say’s law is based on free market policy but
Keynes has focused on the need of the intervention of
state at times of overproduction and mass
unemployment through fiscal and monetary policies.
Wage-cut is not favorable
Supporting says law, Pigou favored a wage-cut
policy to solve the unemployment problem. But Keynes
is not in favor of wage-cut policy. He believes that wage-
cut brings deficiency in aggregate demand which
increases unemployment instead of removing it. So
wage-cut is not favorable.
Saving and investment equality through income
Keynes opposes Say’s view that saving and
investment equality is restored through rate of interest.
He advocates, it is change in income rather than rate of
interest which bring about equality in them.
12. 1/19/2015By Premraj Bhatta 12
Unemployment Situation
According to Keynes full employment is a special
case because in capitalist economies, unemployment is
is fount existing. Capitalist economies are not found
functioning according to says law and supply always
higher than its demand. Therefore many workers are
willing to work at current wage rate but remain
unemployed.