Question

What is effective demand?

Hint:

Effective demand is a crucial concept in Keynesian economics, as it determines the level of economic output and employment.

Answer 1

Step 1: Understanding Effective Demand.
Effective demand refers to the total demand for goods and services in an economy at a particular price level, which is backed by the actual purchasing power of consumers. It is the demand that is backed by sufficient income or credit to buy goods and services.

Step 2: Conclusion.
Thus, effective demand occurs when consumers have the ability to pay for the goods they demand.