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Q. Explain the Says Law?
GDP, and Say's Law
Aggregate supply
YS = f(L, K) in the classical model where L is concluded in the labor market while K is exogenous
Aggregate supply YS is stated as the amount of finished services and goods firms in a country will want to sell under given conditions. In the classical model aggregate supply is concluded by production function, YS = f (L, K).
The amount of capital in classical model is an exogenous variable; it isn't determined within the model though presumed to be given. However we typically presume that K is constant - which is reasonable in the short run - it need not to be constant. K may increase over time though we should know K at any point in time.
Amount of labor, though, is an endogenous variable which is determined in the labor market. This concludes that YS is determined completely by the labor market in classical model. The below chart explains.
Figure: Determination of aggregate supply
Goods in the circular flow If Y R is total value of all goods going from F R to F H , then total value added from all firms in the F R box is equal to Y R (they don't pu
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