Say's law will prevent recessions only if a critical assumption of the classical model holds: That the interest rate adjusts until saving is equal to business and government borrowing.

Question

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Say's law states that supply creates its own demand, meaning that the production of goods and services generates enough income for people to be able to purchase those goods and services. However, this will only prevent recessions if the classical assumption of interest rate adjustment until saving equals investment holds. If this assumption does not hold, then Say's law may not prevent recessions as it depends on all resources being efficiently used in the economy.

Say's Law Will Prevent Recessions Only If a Critical Assumption