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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

According to Keynes, why might aggregate demand be too low?

To determine

Why aggregate demand be too low according to Keynes.

Explanation

Each individual would have their own demand curves. The demand curves of each individual differ according to the changes in the prices in the economy. When the total demand of the economy has to be calculated, each of these individual demand curves should be added. Such aggregation of the individual demand curves of the economy is known as the aggregate demand of the economy.

The self regulating economy has the say's law of market, which means that the supply creates its own demand. According to this law, each unit of output produced creates its own demand in the market. Thus, the market will be always cleared and there will be no excess demand or supply in the market. However, according to Keynes, the say's law of market would hold on to a commodity market where the barter system prevails...

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