Write 8 page essay on the topic Features Of The Main Theories Of Economics.
The concept of Says Law is that the national economy can generate a total income that equals the value of the real GDP (Wiley Publishing, 2009a). And that means that the economy has the ability to buy all of its own production (Wiley Publishing, 2009a). J. B. Say himself says that “Supply creates its own demand” (“Debate”, n,d,).
It is not a certain fact that the economy will spend all of the generated income. That’s because a part of the income will be saved, and that means that the “aggregate demand” will decrease. “Aggregate supply” must be reduced in order to become equal to aggregate demand. “Suppliers will cut back on their production and reduce the number of resources that they employ” (Wiley Publishing, 2009a). The equilibrium level of the real GDP will drop because the production resources are not in a status of full employment. The existence of “aggregate saving” prevents GDP from reaching its natural level. According to classical economists, the savings will return to the economy as “investment expenditures”. Investment expenditures are considered a part of the real GDP. But the savings can become more than the required investment in the economy. “In this situation, the level of real GDP will fall below its natural level because investment expenditures will be less than the level of aggregate saving” (Wiley Publishing, 2009a). The following diagram explains this theory:
In the previous diagram, the curve of Aggregate savings (S) goes up. And that means that with the rise in interest rates, people prefer to save more money. That’s because it means more interests on their savings, and that will lead to more profits.