Question

Effective demand is dependent on

• A. Aggregate demand
• B. Aggregate supply
• C. Both (A) and (B)
• D. None of these

Hint:

Keynes's "Effective Demand" isn't just demand or supply; it's the specific equilibrium point where the two meet.

Answer 1

The Correct Option is C

In Keynesian economics, the principle of effective demand is central. Effective demand refers to the level of aggregate demand that is equal to aggregate supply. It is the equilibrium point where the total spending in the economy (Aggregate Demand) matches the total output (Aggregate Supply). Therefore, the level of effective demand is determined by the intersection of both the aggregate demand and aggregate supply curves.