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Principle Of Effective Demand
The Principle of Effective Demand is the title of chapter 3 of John Maynard Keynes's book ''The General Theory of Employment, Interest and Money.'' The principle presented in that chapter is that the aggregate demand function and the aggregate supply function intersect each other at the point of effective demand and that this point can be consistent with a state of under-employment and under-capacity utilization. Another way of expressing this, in pre-Keynesian terminology, is to say that " demand creates its own supply" which gives primacy to a shifting demand function that can be insufficient to give an economy full employment in the long term, in contrast to the Say's law which insists "supply creates its own demand" and doesn't allow the possibility of long term unemployment as the supply figure is always, by definition, a fixed amount that demand will match. According to Keynes it is the principle of effective demand that determines the level of output and employment in a count ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
The General Theory Of Employment, Interest And Money
''The General Theory of Employment, Interest and Money'' is a book by English economist John Maynard Keynes published in February 1936. It caused a profound shift in economic thought, giving macroeconomics a central place in economic theory and contributing much of its terminology – the " Keynesian Revolution". It had equally powerful consequences in economic policy, being interpreted as providing theoretical support for government spending in general, and for budgetary deficits, monetary intervention and counter-cyclical policies in particular. It is pervaded with an air of mistrust for the rationality of free-market decision making. Keynes denied that an economy would automatically adapt to provide full employment even in equilibrium, and believed that the volatile and ungovernable psychology of markets would lead to periodic booms and crises. The ''General Theory'' is a sustained attack on the classical economics orthodoxy of its time. It introduced the concepts of the cons ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Aggregate Demand
In macroeconomics, aggregate demand (AD) or domestic final demand (DFD) is the total demand for final goods and services in an economy at a given time. It is often called effective demand, though at other times this term is distinguished. This is the demand for the gross domestic product of a country. It specifies the amount of goods and services that will be purchased at all possible price levels. Consumer spending, investment, corporate and government expenditure, and net exports make up the aggregate demand. The aggregate demand curve is plotted with real output on the horizontal axis and the price level on the vertical axis. While it is theorized to be downward sloping, the Sonnenschein–Mantel–Debreu results show that the slope of the curve cannot be mathematically derived from assumptions about individual rational behavior. Instead, the downward sloping aggregate demand curve is derived with the help of three macroeconomic assumptions about the functioning of markets: ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Aggregate Supply
In economics, aggregate supply (AS) or domestic final supply (DFS) is the total supply of goods and services that firms in a national economy plan on selling during a specific time period. It is the total amount of goods and services that firms are willing and able to sell at a given price level in an economy. Analysis There are two main reasons why the amount of aggregate output supplied might rise as price level ''P'' rises, i.e., why the ''AS'' curve is upward sloping: * The short-run ''AS'' curve is drawn given some nominal variables such as the nominal wage rate, which is assumed fixed in the ''short run''. Thus, a higher price level ''P'' implies a lower real wage rate and thus an incentive to produce more output. In the neoclassical ''long run'', on the other hand, the nominal wage rate varies with economic conditions. (High unemployment leads to falling nominal wages which restore full employment.) Hence, in the long run, the aggregate supply curve is vertical. * An ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Effective Demand
In economics, effective demand (ED) 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. In the aggregated market for goods in general, demand, notional or effective, is referred to as aggregate demand. The concept of effective supply parallels the concept of effective demand. The concept of effective demand or supply becomes relevant when markets do not continuously maintain equilibrium prices.Robert Barro and Herschel Grossman, 1976. "Money, Employment, and Inflation'', Cambridge Univ. Press. Examples of spillovers One example involves spillovers from the labor market to the goods market. If there is labour market disequilibrium such that individuals cannot supply all the labor they want to supply, then the amount that they are able to supply will influence their demand for goods; the ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Demand-led Growth
Demand-led growth is the foundation of an economic theory claiming that an increase in aggregate demand will ultimately cause an increase in total output in the long run. This is based on a hypothetical sequence of events where an increase in demand will, in effect, stimulate an increase in supply (within resource limitations). This stands in opposition to the common neo-classical theory that demand follows supply, and consequently, that supply determines growth in the long run. The demand-centric theory is built on the foundation of work by thinkers such as John Maynard Keynes, Michał Kalecki, Petrus Verdoorn, and Nicholas Kaldor; and is expanded on through research by organizations like the ILO and the Levy Economics Institute of Bard College. Within the theory of demand-led growth, there exist two schools of thought. The first claims that an increase in wage share is the impetus for growth. A study by the ILO, to illustrate, concluded that higher wage shares correlate with ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Say's Law
In classical economics, Say's law, or the law of markets, is the claim that the production of a product creates demand for another product by providing something of value which can be exchanged for that other product. So, production is the source of demand. In his principal work, ''A Treatise on Political Economy'' (''Traité d'économie politique'', 1803), Jean-Baptiste Say wrote: "A product is no sooner created, than it, from that instant, affords a market for other products to the full extent of its own value." And also, "As each of us can only purchase the productions of others with his own productions – as the value we can buy is equal to the value we can produce, the more men can produce, the more they will purchase." Some maintain that Say further argued that this law of markets implies that a general glut (a widespread excess of supply over demand) cannot occur. If there is a surplus of one good, there must be unmet demand for another: "If certain goods remain unsold, i ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Effective Demand
In economics, effective demand (ED) 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. In the aggregated market for goods in general, demand, notional or effective, is referred to as aggregate demand. The concept of effective supply parallels the concept of effective demand. The concept of effective demand or supply becomes relevant when markets do not continuously maintain equilibrium prices.Robert Barro and Herschel Grossman, 1976. "Money, Employment, and Inflation'', Cambridge Univ. Press. Examples of spillovers One example involves spillovers from the labor market to the goods market. If there is labour market disequilibrium such that individuals cannot supply all the labor they want to supply, then the amount that they are able to supply will influence their demand for goods; the ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Demand
In economics, demand is the quantity of a good that consumers are willing and able to purchase at various prices during a given time. The relationship between price and quantity demand is also called the demand curve. Demand for a specific item is a function of an item's perceived necessity, price, perceived quality, convenience, available alternatives, purchasers' disposable income and tastes, and many other options. Factors influencing demand Innumerable factors and circumstances affect a consumer's willingness or to buy a good. Some of the common factors are: The price of the commodity: The basic demand relationship is between potential prices of a good and the quantities that would be purchased at those prices. Generally, the relationship is negative, meaning that an increase in price will induce a decrease in the quantity demanded. This negative relationship is embodied in the downward slope of the consumer demand curve. The assumption of a negative relationship is reaso ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Keynesian Economics
Keynesian economics ( ; sometimes Keynesianism, named after British economist John Maynard Keynes) are the various macroeconomic theories and models of how aggregate demand (total spending in the economy) strongly influences economic output and inflation. In the Keynesian view, aggregate demand does not necessarily equal the productive capacity of the economy. Instead, it is influenced by a host of factors – sometimes behaving erratically – affecting production, employment, and inflation. Keynesian economists generally argue that aggregate demand is volatile and unstable and that, consequently, a market economy often experiences inefficient macroeconomic outcomes – a recession, when demand is low, or inflation, when demand is high. Further, they argue that these economic fluctuations can be mitigated by economic policy responses coordinated between government and central bank. In particular, fiscal policy actions (taken by the government) and monetary policy actions ( ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
