According to John Maynard Keynes, employment depends upon

[amp_mcq option1=”aggregate demand” option2=”aggregate supply” option3=”effective demand” option4=”rate of interest” correct=”option3″]

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UPSC CDS-1 – 2019

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According to John Maynard Keynes’s theory of employment (as presented in ‘The General Theory’), the level of employment is determined by the level of effective demand. Effective demand is the point where aggregate demand equals aggregate supply. In the Keynesian framework, unemployment (especially involuntary unemployment) arises when aggregate demand is insufficient to absorb the total potential output corresponding to full employment. Therefore, increasing aggregate demand is the key to increasing employment up to the point of full employment. While aggregate supply is also present, effective demand is the crucial factor determining the *actual* level of employment.

– Keynesian theory focuses on aggregate demand as the primary determinant of employment in the short run.
– Effective demand is the specific level of aggregate demand that determines the level of employment.
– Unemployment arises from a deficiency of effective demand.

– Aggregate demand is the total demand for goods and services in an economy.
– Aggregate supply is the total supply of goods and services in an economy.
– The rate of interest influences investment, which is a component of aggregate demand, but effective demand is the direct determinant of employment in Keynes’s framework.

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