Effective demand and short-term adjustments in the General Theory
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.
|Date of creation:||Feb 2006|
|Publication status:||Published in Cahiers de la Maison des Sciences Economiques 2006.18 - ISSN 1624-0340. 2006|
|Note:||View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00112440|
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- John King, 1993.
"Aggregate Supply and Demand Analysis Since Keynes: A Partial History,"
1993.16, School of Economics, La Trobe University.
- John King, 1993. "Aggregate Supply and Demand Analysis Since Keynes: A Partial History," Working Papers 1993.16, School of Economics, La Trobe University.
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- Godley, Wynne, 1999. "Money and Credit in a Keynesian Model of Income Determination," Cambridge Journal of Economics, Oxford University Press, vol. 23(4), pages 393-411, July. Full references (including those not matched with items on IDEAS)
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