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Total income depends on total employment which depends on effective demand which in turn depends on consumption expenditure and investment expenditure. Consumption depends on income and propensity to consume. Investment depends upon the marginal efficiency of capital and the rate of interest.

J. M. Keynes made it clear that the level of employment depends on

aggregate demand and aggregate supply. The equilibrium level of income

or output depends on the relationship between the aggregate demand

curve and aggregate supply curve. As Keynes was interested in the

immediate problems of the short run, he ignored the aggregate supply

function and focused on aggregate demand. And he attributed

unemployment to deficiency in aggregate demand.

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