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Explaining the Aggregate Price Level with Keynes’s Principle of Effective Demand

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Author Info
Jochen Hartwig () (KOF Swiss Economic Institute, ETH Zurich)

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Abstract

The conventional wisdom about Keynes’s Principle of Effective Demand is that it states something about quantities. It is widely held that the Principle determines the levels of output and employment in a world not governed by Say’s Law. This paper argues that the Principle of Effective Demand goes beyond this to explain not only ‘real’ activity levels but also the aggregate price level. A variant of the Post Keynesian D/Z-model is brought together with Marxian reproduction schemes to derive this result.

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Publisher Info
Paper provided by KOF Swiss Economic Institute, ETH Zurich in its series KOF Working papers with number 04-95.

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Length: 24 pages
Date of creation: Nov 2004
Date of revision:
Handle: RePEc:kof:wpskof:04-95

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Related research
Keywords: Effective demand; multiplier; Post Keynesianism; D/Z-model; reproduction schemes;

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Find related papers by JEL classification:
B14 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Socialist; Marxist
B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
E20 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Tony Thirlwall, 1998. "A 'Second Edition' of Keynes's General Theory," Studies in Economics 9820, Department of Economics, University of Kent. [Downloadable!]
  2. Dutt, Amitava Krishna, 1987. "Keynes with a Perfectly Competitive Goods Market," Australian Economic Papers, Blackwell Publishing, vol. 26(49), pages 275-93, December.
  3. repec:cup:cbooks:9780521066310 is not listed on IDEAS
  4. King, J., 1993. "Aggregate Supply and Demand Analysis Since Keynes: A Partial History," Papers 16-93, La Trobe - Department of Economics.
  5. Claude Gnos, 2004. "Is ex-ante ex-post analysis irrelevant to Keynes's theory of employment?," Review of Political Economy, Taylor and Francis Journals, vol. 16(3), pages 335-345, July. [Downloadable!] (restricted)
  6. Davidson, Paul, 1972. "Money and the Real World," Economic Journal, Royal Economic Society, vol. 82(325), pages 101-15, March. [Downloadable!] (restricted)
  7. Giuseppe Fontana, 2004. "Hicks on monetary theory and history: money as endogenous money," Cambridge Journal of Economics, Oxford University Press, vol. 28(1), pages 73-88, January.
  8. Casarosa, Carlo, 1981. "The Microfoundations of Keynes's Aggregate Supply and Expected Demand Analysis," Economic Journal, Royal Economic Society, vol. 91(361), pages 188-94, March. [Downloadable!] (restricted)
  9. Jochen Hartwig, 2004. "Keynes's multiplier in a two-sectoral framework," Review of Political Economy, Taylor and Francis Journals, vol. 16(3), pages 309-334, July. [Downloadable!] (restricted)
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