John Maynard Keynes Essay Example | Topics and Well Written Essays - 500 words

John Maynard Keynes - Essay Example If the existing aggregate expenditure level is not adequate to acquire the whole supplied real GDP, output will be reduced until real GDP level is equivalent to the aggregate expenditure level (Morton 2003). Thus, according to Tucker (2008), if the existing aggregate expenditure level is not adequate to acquire real GDP’s normal level, then the real GDP’s equilibrium level will fall at some point below the normal level. If the falling of prices is prevented, then to prevent too much inventory accumulations supplies should cut back the supplied quantity, even though they would be eager to provide bigger volumes at the existing market prices (Morton 2003). This scenario is a case of equilibrium merely in the quite narrow logic that the ‘quantity actually supplied of final goods and services is equal to the quantity demanded’ (Truett & Truett 1998, 71). The multiplier theory determines an exact correlation between the rate of investment and aggregate income, g iven the slight tendency to consume (Morton 2003). Keynes coined the term ‘investment multiplier’ to refer to that internal factor innate in the economic system which transmits, incorporates, and absorbs an outside ‘shock’ (Truett & Truett 1998, 72).