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How would Keynesian economics, Say's law, and fiscal policy lessen the impact of an economic recession?

Keynesian economics posits that fiscal policy that creates more demand will lessen the effect of a recession. Say's Law states that fiscal policy should not create artificial demand, but rather encourage production and investments according to the true demand in the economy so that it rectifies itself.

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Keynesian economics and Say's Law are both linked to supply and demand, but in inverse ways. Simply put, Keynes's Law posits that demand creates supply, which then affects real GDP. Say's Law states that demand leads to supply which affects prices, but not real GDP. However, fiscal policy can incorporate...

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Keynesian economics and Say's Law are both linked to supply and demand, but in inverse ways. Simply put, Keynes's Law posits that demand creates supply, which then affects real GDP. Say's Law states that demand leads to supply which affects prices, but not real GDP. However, fiscal policy can incorporate elements of these two approaches in an attempt to mitigate the effects of an economic recession.

During a recession, the ability of an economy to produce goods and offer services never actually changes. There are still potential employees ready to work, and manufacturing infrastructure is still in place. If Keynes's Law is to be believed, then a recession is caused because there is no demand for the services of these jobless workers and mothballed factories. GDP, therefore, is related to the demand, not the economic potential. Furthermore, prices won't fluctuate over the short term. According to Keynes, increasing demand by way of an outside stimulus will help pull an economy out of a recession. This can be done through monetary policy, such as printing and distributing more money. Fiscal policy can also create more demand by lowering taxes, preventing price fluctuations, and increasing government spending.

Say posited that increased production would lead to higher demand. Production, therefore, is the source of economic growth and demand will set that product's price. Overproduction, however, results in price drops which in turn lead to lost revenue. This results in a reduction in production and less demand for labor. According to this more classical model of economics, a government's fiscal policy should be more hands-off than in the Keynesian model. A government should not take control of production because this could lead to overproduction. Rather, it should simply encourage businesses to produce and make investments according the demands of the market which will then correct itself.

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