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

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  • Corrado Andini

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.

Suggested Citation

  • Corrado Andini, 2009. "Teaching Keynes’s Principle of Effective Demand within the Real Wage vs. Employment Space," Forum for Social Economics, Taylor & Francis Journals, vol. 38(2-3), pages 209-228.
    • Handle: RePEc:taf:fosoec:v:38:y:2009:i:2-3:p:209-228
    DOI: 10.1007/s12143-009-9035-z
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    1. Paul Davidson, 1983. "The Marginal Product Curve Is Not the Demand Curve for Labor and Lucas’s Labor Supply Function Is Not the Supply Curve for Labor in the Real World," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 6(1), pages 105-117, September.
    2. J.E. King, 2005. "Unwarping the record: a reply to Paul Davidson," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 27(3), pages 377-384.
    3. Marc Lavoie, 2005. "Changing definitions: a comment on Davidson's critique of King's history of Post Keynesianism," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 27(3), pages 371-376.
    4. Davidson, Paul, 1998. "Post Keynesian Employment Analysis and the Macroeconomics of OECD Unemployment," Economic Journal, Royal Economic Society, vol. 108(448), pages 817-831, May.
    5. Roger E. A. Farmer, 2008. "Aggregate demand and supply," International Journal of Economic Theory, The International Society for Economic Theory, vol. 4(1), pages 77-93.
    6. repec:mes:jeciss:v:37:y:2003:i:3:p:697-725 is not listed on IDEAS
    7. Harris, Donald J, 1974. "The Price Policy of Firms, the Level of Employment and Distribution of Income in the Short Run," Australian Economic Papers, Wiley Blackwell, vol. 13(22), pages 144-151, June.
    8. Barro, Robert J & Grossman, Herschel I, 1971. "A General Disequilibrium Model of Income and Employment," American Economic Review, American Economic Association, vol. 61(1), pages 82-93, March.
    9. Paul Dalziel & Marc Lavoie, 2003. "Teaching Keynes's Principle of Effective Demand Using the Aggregate Labor Market Diagram," The Journal of Economic Education, Taylor & Francis Journals, vol. 34(4), pages 333-340, December.
    10. Paul Davidson, 2005. "Responses to Lavoie, King, and Dow on what Post Keynesianism is and who is a Post Keynesian," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 27(3), pages 393-408.
    11. Kniesner, Thomas J & Goldsmith, Arthur H, 1987. "A Survey of Alternative Models of the Aggregate U.S. Labor Market," Journal of Economic Literature, American Economic Association, vol. 25(3), pages 1241-1280, September.
    12. A. Asimakopulos, 1975. "A Kaleckian Theory of Income Distribution," Canadian Journal of Economics, Canadian Economics Association, vol. 8(3), pages 313-333, August.
    13. Marc Lavoie, 2003. "Real Wages and Unemployment with Effective and Notional Demand for Labor," Review of Radical Political Economics, Union for Radical Political Economics, vol. 35(2), pages 166-182, June.
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