Aggregate effective demand and full employment level

Reference no: EM1312697

According to the neo-classical economic theory, the market is a natural, self-regulating system that tends automatically towards the full employment equilibrium of supply and demand. What are the assumptions underlying this view? According to Keynes, there is no such tendency in the economy, but, on the contrary, aggregate effective demand is likely to be a problem, preventing movement to the full employment level. Why does he think this? Why is this disagreement important?

Reference no: EM1312697

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