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  • Economic theory associated with the thinking of John Maynard Keynes is broadly referred to as Keynesian. The foundation of Keynesian economic theory is based on: (a) aggregate demand, (b) savings and investment, (c) labor market failure, and (d) expansion ary fiscal policy.

    A fundamental argument of Keynesian economics is that aggregate demand plays a critical role in determining the level of real output. There is a tendency for actual expenditure to fall short of planned expenditure. Actual expenditure is the amount that economic agents (house holds, firms, and governments) spend on goods and ser vices, and this amount is what in effect determines national income. Planned expenditure is the amount that economic agents will like to spend on goods and services.

    Aggregate spending induces more production and ...

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