What is effective demand, Macroeconomics

Assignment Help:

Effective Demand

The concept of effective demand is the logical starting point of Keynes Theory of Employment. Effective demand manifests itself in the aggregate expenditure of the community. The aggregate expenditure of the economy comprises the consumption expenditure of households, investment expenditure of firms, and the government expenditure. The aggregate expenditure depends upon the level of real income. Larger the level of real income, the more will be the aggregate expenditure, and vice versa.

Effective demand, thus is equal to the level of national income, i.e., the aggregate factor income in the form of wages, rent, interest, profit, etc. the income earned by the factors is spent on the  goods and services produced in the economy. Therefore, effective demand can also be expressed in terms of the total value of output in the economy.

It should, however, be remembered that every level of demand is not effective. Only that level of demand is effective which is set by a corresponding supply. In case, the level of aggregate expenditure or demand is high but adequate supply of good and service is not forthcoming, the level of effective demand and employment will remain very low. Therefore, the equilibrium level of effective demand or full employment is attained when the aggregate demand equals the aggregate supply.


Related Discussions:- What is effective demand

Relationship between l and p, Q. Relationship between L and P? • As lon...

Q. Relationship between L and P? • As long as L is smaller than LB, L may change with no change in prices. In this range, there is no relation between L andP. • When L is betw

Draw the strategic form game, Consider a two-player game where player A cho...

Consider a two-player game where player A chooses "Up," or "Down" and player B chooses "Left," "Center," or "Right". Their player is as follows: When player A chooses "Up" and play

Price of gasoline has recently come down, The price of gasoline has recentl...

The price of gasoline has recently come down as has the quantity. Show graphically and explain what might have caused this.

Consumer price index, (Consumer Price Index)Given the following data, what ...

(Consumer Price Index)Given the following data, what was the value of the consumer price index in the base year? Calculate the annual rate of consumer price inflation in 2013 in ea

Heckscher-ohlin theory, Suppose Nigeria has 20 million workers and 16 milli...

Suppose Nigeria has 20 million workers and 16 million units of capital, while Botswana has 5 million workers and 3.5 million units of capital. Which of the following statements is

Production economic .., One constraint in our economy is time. As a society...

One constraint in our economy is time. As a society, we make choices about the allocation of time between work and other pursuits. In the US, most workers are eligible for overtime

Determine the real rate of return on investment, A) Suppose Jean Splicer, a...

A) Suppose Jean Splicer, an investor, buys $300,000 of shares of stock in a diversified bundle of Bio-tech firms and exactly one year later sells those shares for $315,000. Assume

Government imposes a price floor, Consider the above table. Assuming the go...

Consider the above table. Assuming the government imposes a price floor on garbanzo beans of $8, what would be the likely result? a. no change, equilibrium would prevail b. T

Help, Examine the graph below. The mayor has placed a $2 tax on the sale of...

Examine the graph below. The mayor has placed a $2 tax on the sale of each taco sold within the city. How large is the decrease in producer surplus?

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd