Periods of very high inflation and recessions are virtually nonexistent, and if cyclical unemployment exists, it can be eliminated within a relatively short period of time. Since full employment is the norm rather than the exception, Say s Law applies, which suggests that supply will create its own demand. The production of final goods generates an income level equal to the value of final goods produced. Say s law presumes that production of goods is both productive and allocative efficient. Since markets will eliminate cyclical unemployment and inflation, there is no need for government involvement in the national economy.
Inflation is explained in terms of monetary phenomenon.
A gradual increase in the price level is the result of demand-pull pressures. Therefore, to maintain a stable price level, the price level should be closely monitored and manipulated through Federal Reserve policies. The ideal economic system is capitalism with socialist institutions. The economy is inherently unstable and the price system alone will not always eliminate excessive cyclical unemployment and high inflation. As evidence during the Great Depression and the Second World War, there can be major upswings and downswings in economic activity.