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Consumption and Effective Demand

In: Understanding Keynes’ General Theory

Author

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  • Brendan Sheehan

    (Leeds Metropolitan University)

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.

Suggested Citation

  • Brendan Sheehan, 2009. "Consumption and Effective Demand," Palgrave Macmillan Books, in: Understanding Keynes’ General Theory, chapter 5, pages 92-111, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-23285-3_5
    DOI: 10.1057/9780230232853_5
    as

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