The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Aggregate Supply Function

  • Paul Davidson
Reference work entry


John Maynard Keynes wrote The General Theory (1936) in order to show that Say’s Law, where (aggregate) supply created its own (aggregate) demand, was not applicable to a monetary, production economy. In a Say’s Law world, the aggregate demand function would be coincident with the aggregate supply function so that ‘effective demand, instead of having a unique equilibrium value, is an infinite range of values all equally admissible; and the amount of employment is indeterminate except in so far as the marginal disutility of labour sets an upper limit’ (Keynes 1936, p. 26). In other words, Say’s Law assumes there is no barrier to the economy obtaining, in the long run, a full employment output level.

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© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Paul Davidson
    • 1
  1. 1.