Explaining the aggregate price level with Keynes's principle of effective demand |
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Authors: | Jochen Hartwig |
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Institution: | Swiss Institute for Business Cycle Research at the Swiss Federal Institute of Technology (KOF ETH) , Zurich, Switzerland |
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Abstract: | The mainstream view of Keynes's principle of effective demand is that it states something about quantities—and about quantities only. The principle is held to determine the levels of output and employment in a world not governed by Say's law. This paper argues that the principle of effective demand goes beyond this to explain not only ‘real’ activity levels but also the aggregate price level. A variant of the post-Keynesian D/Z-model is brought together with Marxian reproduction schemes to derive this result. |
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Keywords: | effective demand multiplier post-Keynesianism D/Z-model reproduction schemes |
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