Effective demand and short-term adjustments in the General Theory

Olivier Allain ()

Cahiers de la Maison des Sciences Economiques from Université Panthéon-Sorbonne (Paris 1)

Abstract: Keynes' principle of effective demand constitutes a pillar for Post Keynesians theories. But Keynes' presentation remains difficult to interpret, mainly because the aggregate demand function is based on entrepreneurs' expectations. The problem is then to demonstrate how these entrepreneurs (whose only concern is making profits) are led to produce the effective demand (which partially results from the consumers' and investors' behaviour). Previous studies by authors like Weintraub or Davidson highlight the trial and error procedure here at stake. However, since their analyses are not built on a precise accounting of monetary flows, they fail to formally demonstrate the coherence of the whole adjustment process. The aim of this article is to provide such a formal demonstration. We thus concentrate on the General Theory to verify how it constitutes a coherent framework to analyse temporary equilibriums (at the end of every elementary period) and short-term dynamics which bring the economy towards the stationary equilibrium

Keywords: Keynesian economics; General Theory; macroeconomics; effective demand; short-term expectations (search for similar items in EconPapers)
JEL-codes: B20 B22 E12 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2006-02
New Economics Papers: this item is included in nep-mac
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Related works:
Journal Article: Effective Demand and Short-term Adjustments in the General Theory (2009)
Working Paper: Effective demand and short-term adjustments in the General Theory (2009)
Working Paper: Effective demand and short-term adjustments in the General Theory (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:mse:wpsorb:bla06018

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