Integration With Keynesian Aggregate Demand
Keynes said that a drop in aggregate demand could lower employment and the price level (an everyday concept in the deflationary depression). In the IS-LM framework of Keynesian economics a negative aggregate demand shock would shift the LM curve left due to rising real wages changing liquidity preference. The Pigou effect would counterbalance this by shifting the IS curve right due to rising real balances raising expenditures.
Read more about this topic: Pigou Effect
Famous quotes containing the words integration, aggregate and/or demand:
“The more specific idea of evolution now reached is—a change from an indefinite, incoherent homogeneity to a definite, coherent heterogeneity, accompanying the dissipation of motion and integration of matter.”
—Herbert Spencer (1820–1903)
“a fortress against ideas and against the
Shuddering insidious shock of the theory-vendors
The little sardine men crammed in a monster toy
Who tilt their aggregate beast against our crumbling Troy.”
—Louis MacNeice (1907–1963)
“I demand that my books be judged with utmost severity, by knowledgeable people who know the rules of grammar and of logic, and who will seek beneath the footsteps of my commas the lice of my thought in the head of my style.”
—Louis Aragon (1897–1982)