Q.What is meant by 'effective demand' in Keynesian economics?

Effective demand is the central concept Keynes used to explain why an economy can remain stuck with unemployment.

Effective demand, in Keynes' General Theory (1936), is the level of aggregate demand — the total planned spending by households (consumption), firms (investment) and government — at which the level of a country's output and employment actually comes to rest. Keynes' key departure from classical economics was to argue that this level of effective demand need not correspond to full employment: if, for example, businesses become pessimistic and cut back investment spending during a downturn, aggregate demand falls, firms respond by producing less and employing fewer workers, and the resulting lower incomes further reduce consumption spending — the economy can settle into an equilibrium with substantial unemployment, and stay there, because nothing in Keynes' model forces effective demand back up to the full-employment level automatically (unlike the classical Say's Law, which assumed supply itself creates the demand needed to buy it back). This is precisely why Keynes argued that government must sometimes step in — through increased governm …