<P> Classical economics has been criticized for its assumptions that the economy works on a full - employment equilibrium which is a false assumption in reality, where the economy often operates at an under - employment equilibrium mainly because of "sticky" wages, which in turn provides the foundation for the Keynesian model of aggregate expenditure . </P> <P> Keynesian economics believes, contrary to the classical thought that the wages, prices and interest rates are not flexible and hence violating Say's law, which provided the foundation for the maxim that "supply creates its own demand". Keynes believed that the economy was subject to sticky prices and thus the economy was not in a state of perpetual equilibrium and also operated at an under - employment equilibrium . </P> <P> Keynesian economics calls for a government intervention and is called demand side economics as it believes that aggregate demand and not the aggregate supply determines the GDP because of the difference between the aggregate supply and planned expenditure in an economy . Hence Keynes believed that the government played an important role in the determination on the aggregate expenditure in an economy and was thus included government expenditure in the aggregate expenditure function . </P> <Ul> <Li> − − A E = C + I + G + N X (\ displaystyle--~ ~ ~ ~ AE = C + I + G + NX) </Li> </Ul>

The highest component of aggregate expenditure in south africa