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 only phenomenon with which writing has always been concomitant is the creation of cities and empires, that is the integration of large numbers of individuals into a political system, and their grading into castes or classes.... It seems to have favored the exploitation of human beings rather than their enlightenment.”
—Claude Lévi-Strauss (b. 1908)
“The aggregate of all knowledge has not yet become culture in us. Rather it would seem as if, with the progressive scientific penetration and dissection of reality, the foundations of our thinking grow ever more precarious and unstable.”
—Johan Huizinga (1872–1945)
“... a large portion of those who demand woman suffrage are persons who have not been trained to reason, and are chiefly guided by their generous sensibilities.”
—Catherine E. Beecher (1800–1878)