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Over which time horizon does Say's law, that supply creates its own demand, work best as an approximation?
AOnly during a single trading day
BThe long run of years or decades
CThe short run of a few months
DIt never holds at any time horizon
Answer & Solution
Correct answer: B. The long run of years or decades
1. Say's law claims the economy's productive capacity generates a matching amount of total demand.
2. Over years or decades, total demand tends to grow roughly in step with an economy's growing productive power.
3. Over shorter horizons, recessions can occur where firms as a group face a shortfall of demand, which Say's law does not explain well.
4. So the long run, not the short run, is where Say's law fits best.
_Source: OpenStax Principles of Macroeconomics for AP Courses (CC BY 4.0), Ch 10 "The Aggregate Demand/Aggregate Supply Model", section 10.1 | Macroeconomic Perspectives on Demand and Supply_
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