Question

Does Say’s law apply more accurately in the long run or the short run? What about Keynes’ law?

Short answer

Say’s law was based on a long-run time period wherein long-run whatever is produced finds its demand ultimately while it is not applicable in the short run. Keynes's theory is applicable in the short-run.

Step-by-step solution

Concept introduction

Say’s law of market states that the supply of the goods in the market creates their own demand. According to Keynes' law, demand generates its own supply.

Explanation

Say's law states that full employment will be achieved in the long term through a self-adjusting mechanism. There is always a tendency toward full employment in the free-enterprise capitalist economy. If unemployment occurs occasionally in the economy, wages will fall, the rate of interest and price will fall, and as a result of this employment labor will increase, and unemployment will be automatically removed, assuming the economy is allowed to operate freely without government or trade union interference. In this sense, there can be neither overproduction nor unemployment in the economy in the long run due to wage, price, and interest rate flexibility. This is implausible, and Keynes argued against it in his analysis. Keynes' theory, on the other hand, was developed only for the short term. Because of its society's non-egalitarian nature, he argued that the capitalist system was not automatic and self-adjusting. He pushed for government intervention in the economy to alter supply and demand through fiscal and monetary measures.