The Elgar Companion to John Maynard Keynes
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The Elgar Companion to John Maynard Keynes

Edited by Robert W. Dimand and Harald Hagemann

The most influential and controversial economist of the twentieth century, John Maynard Keynes was the leading founder of modern macroeconomics, and was also an important historical figure as a critic of the Versailles Peace Treaty after World War I and an architect of the Bretton Woods international monetary system after World War II. This comprehensive Companion elucidates his contributions, his significance, his historical context and his continuing legacy.
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Chapter 35: Effective demand

Paul Davidson

Abstract

To attack Say’s law in The General Theory Keynes defines the point of effective demand as the single intersection of the aggregate supply function and the aggregate demand function. The aggregate supply function (Z) represents entrepreneurial expectations of sales receipts (in monetary terms) that would induce them to hire a specific number of workers (N). The larger the expected sales revenue value of Z, the more workers entrepreneurs would be induced to hire. Thus the aggregate supply curve would be upward sloping. The aggregate demand function (D) represents total spending in money terms on produced goods and services or any given level of aggregate employment. Aggregate money spending increases as employment rises.

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