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Question
Why did Keynes use the word “effective” in effective demand?
Options
To show it relates only to exports
To show it is the demand backed by money
To show it is the level of aggregate demand that actually determines employment with aggregate supply
To show it refers only to long‑run demand
MCQ
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Solution
To show it is the level of aggregate demand that actually determines employment with aggregate supply
Explanation:
“Effective” highlights that this aggregate demand, along with aggregate supply, actually determines the realised level of employment in the economy.
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