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

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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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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  1. repec:cup:cbooks:9780521368155 is not listed on IDEAS
  2. Jochen Hartwig, 2004. "Keynes's multiplier in a two-sectoral framework," Review of Political Economy, Taylor & Francis Journals, vol. 16(3), pages 309-334.
  3. Claude Gnos, 2004. "Is ex-ante ex-post analysis irrelevant to Keynes's theory of employment?," Review of Political Economy, Taylor & Francis Journals, vol. 16(3), pages 335-345.
  4. Jochen Hartwig, 2004. "Beyond the Market Paradigm: on Keynes's Principle of Effective Demand, and on the Irrelevance of Rigidities for His Explanation of Involuntary Unemployment," History of Economic Ideas, Fabrizio Serra Editore, Pisa - Roma, vol. 12(1), pages 67-94.
  5. repec:cup:cbooks:9780521590068 is not listed on IDEAS
  6. Hicks, J. R., 1987. "Methods of Dynamic Economics," OUP Catalogue, Oxford University Press, number 9780198772873, March.
  7. Davidson, Paul, 1972. "Money and the Real World," Economic Journal, Royal Economic Society, vol. 82(325), pages 101-15, March.
  8. Victoria Chick, 1983. "Macroeconomics after Keynes: A Reconsideration of the General Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262530457, June.
  9. Douglas Vickers, 1987. "Aggregate Supply and the Producers' Expected Demand Curve: Performance and Change in the Macroeconomy," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 10(1), pages 84-104, October.
  10. Gilbert Koenig, 1980. "Les fondements microéconomiques du principe de la demande effective," Revue Économique, Programme National Persée, vol. 31(3), pages 430-464.
  11. E. Roy Weintraub, 1974. "Keynes' Employment Function," History of Political Economy, Duke University Press, vol. 6(2), pages 162-164, Summer.
  12. A. P. Thirl Wall & J. M. Keynes, 1999. "A "Second Edition" of Keynes' General Theory," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 21(3), pages 367-386, April.
  13. John King, 1993. "Aggregate Supply and Demand Analysis Since Keynes: A Partial History," Working Papers 1993.16, School of Economics, La Trobe University.
  14. Palley, Thomas I, 1997. "Expected Aggregate Demand, the Production Period and the Keynesian Theory of Aggregate Supply," The Manchester School of Economic & Social Studies, University of Manchester, vol. 65(3), pages 295-309, June.
  15. Dutt, Amitava Krishna, 1987. "Keynes with a Perfectly Competitive Goods Market," Australian Economic Papers, Wiley Blackwell, vol. 26(49), pages 275-93, December.
  16. 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.
  17. 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.
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