Question

Between Say’s Law and Keynes’ Law, which best describes economic growth in the short run. In particular, why does on of these basic philosophy’s have trouble explaining short run recessions like the Great Recession of the late 2000’s.

Answer 1

It is the Keynes law that best explains the economic growth in the short run. It is due to the reason that short run growth is determined by the aggregate demand that can be increased by the government stimulus as well as expansionary monetary policy. This economic approach is also supported by the Keynes law that says that demand creates its own supply. So, Keynes law is most suitable for the short run.

Say's law is in trouble explaining the great recession of late 2000's, because Say's law relies upon supply to create its demand, but recession of late 2000s took place due to decrease in aggregate demand. Hence, this type of issue was unknown to the Say's approach towards the economic growth. Hence, Say's law could not explain it.