The Effective Demand Principle
The effective demand principle states that “in a market economy – and, therefore a monetary economy, where money attends all functions (medium of exchange, unit of account and store of value), in every transaction of buying and selling there is only one autonomous decision: the spending one. As a result, all spending results in income of the same extent. By aggregation, the totality of spending in any given period is always equal to and determines the totality of income”.
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