Editing Aggregate demand (section)

==History==
{{Main|The General Theory of Employment, Interest and Money}}
John Maynard Keynes in ''[[The General Theory of Employment, Interest and Money]]'' argued during the [[Great Depression]] that the loss of output by the private sector as a result of a systemic shock (the [[Wall Street crash of 1929]]) ought to be filled by government spending. First, he argued that with a lower 'effective aggregate demand', or the total amount of spending in the economy (lowered in the Crash), the private sector could subsist on a permanently reduced level of activity and [[involuntary unemployment]], unless there were active intervention. Business lost access to capital, so it had dismissed workers. This meant workers had less to spend as consumers, consumers bought less from business, which because of additionally reduced demand, had found the need to dismiss workers. The downward spiral could only be halted and rectified by external action. Second, people with higher incomes have a lower average propensity to consume their incomes. People with lower incomes are inclined to spend their earnings immediately to buy housing, food, transport and so forth, while people with much higher incomes cannot consume everything. They save instead, which means that the [[velocity of money]], meaning the circulation of income through different hands in the economy, is decreased. This lowered the rate of growth. Spending should therefore target public works programmes on a large enough scale to speed up growth to its previous levels.