Further Essays on Economic Theory and Policy

By Nicholas Kaldor; F. Targetti et al. | Go to book overview

4
THE ROLE OF EFFECTIVE DEMAND IN THE SHORT RUN AND THE LONG RUN*

The core of Keynesian theory can be summed up in two propositions. The first is that in a capitalist economy, the level of production in general is not determined by the availability of resources but by effective demand which determines how much of potential resources are effectively utilised. The second is that demand is the sum of two components, an endogenous component which varies in proportion to the costs incurred by entrepreneurs (which constitute the incomes of wage and salary earners) and an exogenous component which is financed out of capital--by borrowing, or by the sale of financial assets, which comes to the same thing--and which Keynes treated as a given factor in the short period, determined by expectations. The principle of effective demand asserts that there is an equilibrium level of output (or employment) at which the proceeds of entrepreneurs (as a group) are neither greater nor less than the proceeds, the expectation of which is the necessary inducement to cause them (the entrepreneurs) to incur expenses on the scale required to produce that output. If we call the latter the 'aggregate supply price' (ASP) (consisting both of the costs incurred in hiring labour etc., and the profits necessary to induce entrepreneurs for incurring costs on that particular scale), the equilibrium level of output will be that at which the sum of endogenous (D1) and exogenous (D2) demand (which could be termed as the 'aggregate demand price', ADP ≡ D1 + D2) is equal to ASP.

Keynes identified exogenous demand with Investment (I) and endogenous demand with Consumption (C). If consumption is assumed to be a simple linear function of Income, Y
C = cY, with 0 1,

____________________
*
Paper delivered at a Conference on Keynes in Paris, September 1983.

-90-

Notes for this page

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this book

This book has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this book

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this page

Cited page

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited page

Bookmark this page
Further Essays on Economic Theory and Policy
Table of contents

Table of contents

Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this book

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
/ 316

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.