Answer to Question #203240 in Economics for Foram

Question

Explain how according to keynes equilibrium level of employment is determined in a capitalist economy.

Answer 1

Keynes’ theory of employment is based on the princi­ple of effective demand. In other words, the level of employment in a capitalist economy de­pends on the level of effective demand. Thus, the equilibrium level of employment is determined by the equilibrium level of demand, that is when demand is equal to supply.