Reply To: Aggregate Demand


a. Government bureaus make estimates of aggregate demand. Conceptually, they seek to add together all monetary expenditures on final goods, which they call Gross Domestic Product.

b. Say’s Law implies that there cannot be insufficient aggregate demand. If demand in insufficient to buy all of some goods that have been produced, there must be a corresponding excess demand of other goods produced.

Moreover, any case of insufficient demand for a particular good puts in motion entrepreneurial reallocation to eliminate the unprofitable production. Facing losses, entrepreneurs reduce output production. Their demands for inputs decline, which lowers input prices, and their reduced supply of output raises output prices. Both of these changes restores profitability at a smaller output production. The resources no longer used find employ in other lines of production at their now lower prices.

c. You might consult the book of collected essays edited by Henry Hazlitt, Critics of Keynesian Economics: