The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Effective Demand

  • J. A. Kregel
Reference work entry


By ‘effective demand’ Keynes meant the forces determining changes in the scale of output and employment as a whole. It was intended to replace Say’s Law. For Keynes, since entrepreneurs maximized monetary returns, not employment or physical output, there was no reason why their investment decisions should lead to an equilibrium at full employment. Since this account permitted any level of employment to emerge as a stable equilibrium, including full employment, it is more general than the classical Say’s Law position, in which the only stable equilibrium was the limit set by full employment as given in the labour market.


Effective demand Excess supply Full employment equilibrium Gold Hume, D. Liquidity preference Malthus, T. R. Marginal efficiency of capital Mercantilism Mill, J. S. Multiplier Natural price Natural rate and market rate of interest Propensity to consume Quantity theory of money Rate of interest Saving and investment Say’s Law Smith, A. Subjective theory of value Supply and demand Velocity of circulation 

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© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • J. A. Kregel
    • 1
  1. 1.