Q.Write a short note on: Effective demand

Effective demand is the level of aggregate demand that equals aggregate supply; at this equilibrium point the entrepreneurs' expected sale proceeds are just realised. In Keynes's theory it determines the level of output and employment in the economy. ## Meaning In Keynes's theory of employment, effective demand is the point at which aggregate demand equals aggregate supply. - Aggregate demand is the total amount that all buyers in the economy are expected to spend. - Aggregate supply is the total value of output that producers are willing to supply at various levels of employment. Entrepreneurs go on employing workers and producing output up to the point where their expected sale proceeds (aggregate demand) just equal the cost of producing that output (aggregate supply). This point of equality is called effective demand. It is 'effective' because it is the demand that is actually realised. Since the level of employment depends on the level of effective demand, more effective demand means more employment. Unemployment arises when effective demand is deficient (less than that needed for …