what is mean by the effective demand principle in Keynesian theory employment? discuss using a schedule or diagram?
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In a capitalist economy, the level of employment depends on effective demand. Thus unemployment results from a deficiency of effective demand and the level of employment can be raised by increasing the level of effective demand.
Contents:
Effective Demand
Importance of Effective Demand
1. Effective Demand:
In ordinary parlance, demand means desire. It becomes effective when income is spent in buying consumption goods and investment goods. Keynes used the term ‘effective demand’ to denote the total demand for goods and services at various levels of employment. Different levels of employment represent different levels of aggregate demand. But there can be a level of employment where aggregate demand equals aggregate supply.
Contents:
Effective Demand
Importance of Effective Demand
1. Effective Demand:
In ordinary parlance, demand means desire. It becomes effective when income is spent in buying consumption goods and investment goods. Keynes used the term ‘effective demand’ to denote the total demand for goods and services at various levels of employment. Different levels of employment represent different levels of aggregate demand. But there can be a level of employment where aggregate demand equals aggregate supply.
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