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Colin Rogers claimed that "the principle of effective demand is the key to understanding both the theoretical claims presented in the General Theory and Keynes’s post-war policy proposals." [3] However, the interpretation of chapter 3 (The Principle of Effective Demand) of The General Theory of Employment, Interest and Money remains confused.
It contrasts with notional demand, which is the demand that occurs when purchasers are not constrained in any other market. In the aggregated market for goods in general, demand, notional or effective, is referred to as aggregate demand. The concept of effective supply parallels the concept of effective demand
The theoretical foundation of post-Keynesian economics is the principle of effective demand that demand matters in the long as well as the short run, so that a competitive market economy has no natural or automatic tendency towards full employment. [9]
The first, now written I (Y, r) = S (Y,r), expresses the principle of effective demand. We may construct a graph on ( Y , r ) coordinates and draw a line connecting those points satisfying the equation: this is the IS curve.
It introduced the concepts of the consumption function, the principle of effective demand and liquidity preference, and gave new prominence to the multiplier and the marginal efficiency of capital. Keynes's aims in the General Theory
Keynes treats a fall in marginal efficiency of capital and an increase in the degree of liquidity preference (demand for money) as sparks leading to an insufficiency of effective demand. A decrease in MEC causes a reduction in investment, which reduces aggregate expenditure and income.
"He wouldn't let me go inside. And he choked me (unintelligible) in the hallway," she said. "He blocked the door so I couldn't go inside, and when I did go inside, he chased me upstairs.
Supply creates its own demand" is a formulation of Say's law. The rejection of this doctrine is a central component of The General Theory of Employment, Interest and Money (1936) and a central tenet of Keynesian economics. See Principle of effective demand, which is an affirmative form of the negation of Say's law.