The General Theory of Employment, Interest and Money

John Maynard Keynes’s 1936 book argues that aggregate demand can determine output and employment, especially when economies are depressed. It challenges the idea that flexible wages and prices reliably restore full employment.

Aggregate demand: Total planned spending on final goods and services in an economy at a given price level. Keynes makes aggregate demand the determinant of output when resources are underused.
Keynesian economics: An economic tradition emphasizing aggregate demand and the possibility of persistent shortfalls in output and employment. The book establishes the central framework later developed as Keynesian economics.
John Maynard Keynes: A British economist whose work reshaped economic theory and policy in the twentieth century. He wrote the book and developed its account of employment, money, and demand.
Fiscal policy: Government decisions about taxation and public spending that affect economic activity. Keynesian reasoning supports increasing public spending when private demand is deficient.
Effective demand: The level of demand at which firms’ expected proceeds make them willing to employ a given workforce. This is the demand level that, in Keynes’s account, determines employment.
Keynesian multiplier: The ratio of a change in total income to the initial change in autonomous spending. It shows how one person’s spending becomes another’s income, amplifying demand.
The Great Depression: A severe worldwide economic downturn that began in 1929 and lasted through much of the 1930s. Persistent mass unemployment made the book’s challenge to self-correcting markets urgent.
New Deal: A set of United States programs and reforms enacted under Franklin D. Roosevelt during the 1930s. Debates over the book’s influence on New Deal policy show how its ideas entered public life.
Consumption function: A relationship describing how household consumption varies with income. Keynes uses households’ spending response to income to explain demand and the multiplier.
Liquidity trap: A situation in which very low interest rates make money and bonds close substitutes, limiting monetary stimulus. Keynes discusses how liquidity preference can obstruct further interest-rate reductions.

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