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Q. 2

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Principles of Economics
Found in: Page 601

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Short Answer

Describe the mechanism by which demand creates its own supply.

Keynes' Law states that demand creates its own supply.

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Step by Step Solution

Step 1. Definitions.

The total quantity of output (i.e. real GDP) firms will produce and sell is aggregate supply

The amount of total spending on domestic goods and services in an economy is aggregate demand.

Step 2. Keynes' Law.

Keynes' Law states that demand creates its own supply. An increase in demand for goods than available in the market tends to attract more suppliers due to prices getting higher and increasing profits. The suppliers in the market increase which results in an increase in supply.

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