Question

What are the two main determinants of effective demand?

Answer 1

Effective demand is primarily determined by two key factors:

1. Aggregate Demand: This is the total amount of money that people in an economy are willing to spend on buying goods at a given level of employment.
2. Aggregate Supply: This refers to the total amount of money that entrepreneurs are willing to spend on producing goods at a given level of employment.

Together, aggregate demand and aggregate supply determine the level of effective demand in an economy.