Keynes effect
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The Keynes effect is the effect that changes in the
real money supply, causing interest rates to fall and in turn causing investment spending on physical capital
to increase.
[1]
This implies that insufficient demand in the product market cannot exist forever, because insufficient demand will cause a lower price level, resulting in increased demand.
There are two case in which the Keynes effect does not occur: in the
IS curve is vertical). The Patinkin-Pigou real balance effect
suggests that due to wealth effects of changes in the price level upon spending itself, insufficient demand cannot persist even in the two cases in which the Keynes effect does not operate.
See also
References
- ^ "The Keynes Effect". http://economics.about.com. Archived from the original on 2013-05-11. Retrieved 2013-05-09.
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