Thursday 28 June 2012

Meaning Of Effective Demand

     Effective demand refers to the aggregate demand for the community at different levels of employment.Keynes used the word 'effective' to analyse the level of aggregate demand which is fully matched by aggregate supply.This equilibrium between aggregate demand and aggregate supply determines level of employment(effective demand) in keynesian system.
     Effective demand manifests itself in  the spending of income in the economy.Aggreagte demand increase with an increase in income and employment.At various levels of income ,there are corresponding levels of demand,but all the levels of demand are not effective.Only that level of aggregate demand which equals aggregate sully is called effective demand.At this level,the entrepreneurs have no tendency either of reduce or to increase  production in the short run.

Wednesday 27 June 2012

Say's Law Of Market

       According to Say's law,"Supply creates its own demand."It implies that there is no fear of general overproduction and general unemployment in an economy.In this regard J.B.Say opined that whatever is produced in an economy is automatically consumed.Producers produce with the intension to sell or exchange with other goods which they need to satisfy their own needs.The producer pay price to the factors of production for their services rendered in the production process.This income to to the factors persuades them to put additional demand for goods and services in market.Therefore,they become the consumers of their own products.In the words of Say,"it is production which creates market for goods."

       Prof.Say did not ignore the possibilities of the supply of a particular commodity exceeding its demand at a particular time.This abnormally to him is due to wrong calculations of businessmen.He apty opined that even in such a situation there is no possibility of general over production and thus general unemployment.