Theory of Income Determination

Discipline: Economics

Based on the income-determination model developed by English economist John Maynard Keynes (1883-1946), and later modified by American economist Paul Samuelson (1915- ), theory of income determination postulates that the level of national income is determined where aggregate demand equals aggregate supply.

The crucial component of aggregate demand is the consumption function. Keynes asserted that his theory was different from those of the classical economists in that the economy could be in equilibrium at any level of employment.

Also see: classical macroeconomic model, disequilibrium theory, equilibrium theory, general equilibrium theory, law of markets, partial equilibrium theory

Source:
J M Keynes, General Theory of Employment, Interest and Money (New York, 1936)

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