Teaching Keynes’s Principle of Effective Demand within the Real Wage vs. Employment Space

Corrado Andini

Forum for Social Economics, 2009, vol. 38, issue 2-3, 209-228

Abstract: This paper reviews several models for teaching Keynes’s principle of effective demand with a special focus on a framework that is familiar to advanced undergraduate students of macroeconomics: the real wage vs. employment space. It is argued that existing approaches to teaching Keynes’s principle of effective demand reflect a tension between two goals: being true to Keynes and translating the effective-demand principle into a story about real wages and employment within a single graphical space. Our main contribution consists of presenting an extended version of a model originally proposed by Lavoie (Rev Radic Polit Econ, 35(2):166--182, 2003), which seems to be a reasonable compromise between these two goals.

Date: 2009
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DOI: 10.1007/s12143-009-9035-z

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