The Keynesian theory of income and employment, developed by British economist J.M. Keynes in 1936, marked a turning point in economic thinking. The theory emphasizes that in the short run, an economy’s income, output, and employment are determined by aggregate demand, or total spending.
Although the model has evolved over time, its core principle remains unchanged. The simple Keynesian model serves as a foundation for more complex models, affirming that higher aggregate demand leads to higher income and output levels.
