Say's law
Say's lawThe proposition that ‘supply creates its own demand’. The argument is that in an economy with fully flexible prices and wages, factors of production could always find employment and goods could always be sold. An equilibrium with involuntarily unemployed labour and involuntarily held stocks could not occur. There seems no logical flaw in this, if full price and wage flexibility could be achieved. The problem is that lack of perfect information makes prices and wages somewhat sticky, which means that involuntary unemployment can exist. If stickiness in prices and wages cannot be removed completely, reducing it may actually make matters worse. This is because downward movements in prices and wages lead to the liquidity trap, in which real spending falls because hoarding money looks the most profitable activity available.
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