Lectures on John Maynard Keynes' General Theory of Employment, Interest and Money (3): Chapter 3, 'The Principle of Effective Demand'

Abstract

In Chapter 3 of the General Theory, Keynes sketches out what he calls the essence of the General Theory of Employment. He introduces the Keynesian expenditure-based model, the aggregate demand curve and also his aggregate supply function, a concept which spawned much debate among Post-Keynesian economists but which was, for a long time, virtually ignored in mainstream macroeconomics. He sets out the Savings=Investment version of Say’s Law and outlines how an economy can settle into an equilibrium at less than full employment.

Keywords: Keynes, General Theory, Keynesian Economics, Classical Economics, Aggregate Demand, Aggregate Supply, Unemployment Equilibrium, Say’s Law

JEL Classification: B10, B12, B13, B22, B31, E12, N12, N14