ILRLE 344 11-19_Notes - ILRLE 344 Lecture 24 Says law...

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ILRLE 344 Lecture 24 Say’s law – economy is self adjusting - There can not be any gluts, because cost of production pays for goods produced Given Say’s law, how can the depression happen? - Politicians and economists stuck with the theory despite evidence against Say - Believed the economy would right itself, and do not get involved - Roosevelt criticized Hoover in the 1932 election for running a deficit o Hoover ran deficits by mistake (set spending above taxes) o Veterans bonus bill of 1931 – congress overrides Hoover’s veto o Raised taxes and interest rates when the unemployment rate is over 20% Say’s law (interpreted by Alfred Marshall) - All money is going to be spent by either consumption or savings - Saving takes money out of the circular flow diagram o Investment is an addition to the circular flow - The key to Say’s law is that investment has to equal savings – S=I o Alfred Marshall claims that savings will never be greater than investment It’s irrational for someone to save – foregoing interest payments
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ILRLE 344 11-19_Notes - ILRLE 344 Lecture 24 Says law...

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