Question

Define effective demand. Discuss how effective demand can be restored if ex-ante saving is less than ex-ante investment.

Answer 1

Answer:

Effective demand in a market is the demand for a product or service which occurs when purchasers are constrained in a different market. It contrasts with notional demand, which is the demand that occurs when purchasers are not constrained in any other market.

If ex-ante investment is more than ex- ante saving, the flow of goods and services tends to be less than their demand and the existing or planned stock id sold out. To restore back the level, the producers would plan to increase their production. In this ex- ante saving would increase and become equal to ex- ante inteinvestment.

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