Title: AGGREGATE DEMAND AND EQUILIBRIUM IN A SIMPLE KEYNESIAN MODEL
Abstract: This chapter presents the concept of planned aggregate demand, which is a key element of Keynesian economic theory. Keynes explained that producers would supply only the quantity of goods sufficient to meet the planned demand of consumers, investors, government, and foreigners. Therefore, subject to the constraint imposed by the scarcity of resources, planned aggregate demand would determine the level of output and employment. If producers expect demand to be strong enough for purchasers to buy their products, then they will produce the goods. On the other hand, if they perceive that demand is so weak that there will be no market for their output, then business decision makers will not produce the goods even if this means idle machines and workers. Therefore, in the Keynesian framework, aggregate demand—total spending—and total output and employment varies directly. Aggregate demand determines the level of output and employment. In this framework, aggregate demand is comprised of the total spending on goods and services. For a purely private domestic economy, the sum of the consumption and investment expenditures constitutes aggregate demand.
Publication Year: 1985
Publication Date: 1985-01-01
Language: en
Type: book-chapter
Indexed In: ['crossref']
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