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Q. Explain Reversed Say's Law?
In the cross model, supply should instead follow demand. Cross model not only rejects Say's Law, it turns it entirely upside down. In the cross model 'demand creates its own supply'.
Just as Say's Law is criticized by many economists, there is criticism of this reversed form of Say's Law. Firms passively produce exactly what consumers want. If there is an increase in demand, firms would just produce this extra quantity. Motivation for this behaviour by the firms is further analysed when we describe the labor market in the cross model.
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Inflation (RPI) - another imperative channel. Oil is a necessity for the UK, and is price inelastic therefore one can analyse the correlation between a price shock and inflation. I
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One of our clients is a major homebuilder in the Midwest. This company believes that sales of their new homes are highly correlated with business cycles in the overall US economy.
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