Question

According to the Keynes theory of employment, what does effective demand signifies and determines?

Answer 1

1. It signifies the money spent on the consumption of goods and services on investment.
2. The relationship between employment and output of an economy depends upon the level of effective demand which is determined by the forces of aggregate supply and aggregate demand.
3. The level of employment in the economy is determined by effective demand.
4. The effective demand will be determined by two determinants, like consumption and investment expenditure.
5. The rate of interest and the marginal efficiency of capital determines the investment levels.