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.
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.
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