John Maynard Keynes in The General Theory of Employment, Interest and Money argued during the Great Depression that the loss of private sector output had to be filled by public spending following a systemic shock (the Wall Street crash of 1929). First, he argued that the private sector could live with less « effective aggregate demand » or total economic spending (in the event of a crisis) of a sustainedly reduced level of activity and involuntary unemployment, unless there is active intervention. Businesses have lost access to capital and laid off workers. This meant that workers had to spend less than consumers, that consumers bought less from the economy, which saw the need to lay off workers because of a further drop in demand. The downward spiral could only be stopped and corrected by external measures. Second, higher-income people are less likely to consume their incomes. Low-income people tend to spend their income immediately to buy housing, food, transportation, while people with much higher incomes cannot consume everything. Rather, they save, which means that the speed of money, that is, the flow of income through different hands in the economy, is reduced. This has reduced the rate of growth. Spending should therefore be directed towards public works programmes, which are of such a magnitude that growth is accelerating to its previous level. In total, for a given country, the total requirements (D -Displaystyle D or A D « Displaystyle AD » of C -I p-G – (X – M) I_ are indicated. The aggregate demand curve illustrates the relationship between two factors: the volume of production requested and the aggregate price level. Total demand is expressed on the basis of a fixed level of the nominal money supply.

There are many factors that can move the AD curve. Transfers of the law are the result of an increase in the money supply, public spending or autonomous components of capital or consumption expenditure, or tax cuts. The aggregate requirements curve is represented by the actual output on the horizontal axis and the price level on the vertical axis. While it is described as tilted downward, sonnenschein-Mantel-Debreu`s results show that the slope of the curve cannot be mathematically deduced from assumptions of individual rational behavior. [3] [4] Instead, the downward aggregate demand curve is derived from three macroeconomic assumptions about the functioning of markets: the asset effect of Pigou, Keynes` effect on interest rates and the Mundell-Fleming exchange rate effect.