Consumption and Effective Demand

Brendan Sheehan
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Brendan Sheehan: Leeds Metropolitan University

Chapter 5 in Understanding Keynes’ General Theory, 2009, pp 92-111 from Palgrave Macmillan

Abstract: Abstract This chapter will explain how the consumption function underpins the derivation of aggregate effective demand in the General Theory model. The purpose is to make clear the connections between the materials in Chapters 3 and 4. Keynes alludes to these linkages in the General Theory but does not amplify them. The chapter will demonstrate that, given the level of aggregate investment spending, the value of the propensity to consume determines effective demand; it highlights the way in which changes in the propensity to consume influences the level of effective demand, and hence the volumes of employment, income and saving. The forces that determine investment spending and cause it to fluctuate are discussed in the forthcoming Chapters 6, 7 and 8.

Keywords: Aggregate Demand; Real Income; Consumption Expenditure; Labour Unit; Employment Level (search for similar items in EconPapers)
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-23285-3_5

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DOI: 10.1057/9780230232853_5

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