(i) Aggregate (desired) consumption expenditure (C)
(ii) Aggregate (desired) private savings (S)
(iii) Net tax payments (T)
(iv) Personal (desired) transfer payments to the foreigners (Rf)
AS = C + S + T + Rf

(i) Effective demand is the money spent on consumption of goods and services and on investment.
(ii) Employment and output depends on the level of effective demand
(iii) When effective demand increases, employment will increase.
(iv) Effective demand is determined by aggregate supply and aggregate demand.

1. No single buyer or seller can affect the price.
2. Full employment
3. People are motivated by self interest Market forces determine everything right.
4. Perfect competition exists in labour and product market.
5. There is wage price flexibility.
6. Money acts as medium of exchange.
7. Long run analysis.
8. No overproduction or unemployment.

S. No:	Keynesianism	Classicism
1.	Short-run equilibrium	Long-run equilibrium
2.	Saving is a vice	Saving is a social virtue.
3.	Money functions as medium of exchange and store of value	Money acts as a medium of exchange
4.	Macro approach to national problems	Micro approach to macro problems
5.	State intervention is advocated	Favoured laissez-faire policy

(i) In the Keynesian model, output is determined mainly by aggregate demand.
(ii) The aggregate demand is the amount of money which entrepreneurs expect to get by selling the output produced by the labourers employed.
(iii) Aggregate demand (spending) is the amount that households, firms, the governments and the foreign purchasers would like to spend on domestic output
Aggregate demand has four components:
1. Consumption demand (C)
2. Investment demand (I)
3. Government expenditure (G)
Net Export ( export - import) (X - M)
AD = C + I + G + (X - M)

(i) Classical unemployment occurs when real wages are kept above the market clearing wage rate, leading to a surplus of labour supplied.
(ii) Classical unemployment is also called real wage unemployment.
(iii) Unemployment occurs when the worker is willing to accept (Real Wages)(RW) is in excess of those an employer is willing to pay (Market Clearing Wage)(MCW).
(iv) Real wage may be above the equilibrium level because of minimum wage policies or union bargaining.
(v) classical unemployment of Q₁-Q₂ can be solved by a wage cut.
(vi) If wages are allowed to fall to the market clearing level, unemployment is solved

S.No Keynesian Classicism 1. Short-run equilibrium Long-run equilibrium 2. Savings is a vice Saving is a social virtue 3. Money functions as medium of exchange and store of value. Money acts as a medium of exchange. 4. Macro approch to national problems. Micro foundation to macro problems. 5. State intervention is advocated. Favoured laissez-fair policy. 6. Applicable to all situations-full employment and less than full employment. Applicable only to the full employment 7. Captialism has inherent contradictions Captialism is good. 8. Budgeting should be adjusted to the requirements of economy. Balanced budget is favored. 9. Equality between saving and investment is achieved through changes in income Equality between saving and investment is achieved through changes of rate of interest 10. Rate of interest is determined by the demand for and supply of money Rate of interest is determined by saving and investment. 11. Rate of interest is a flow. Rate of interest is a stock. 12. Demand vreates its own supply. Supply creates its own demand. 13. Rate of interest is a reward for parting with liquidity Rate of interest is a reward for savings.

Cyclical unemployment:
(i) During the downturn phase (recession and depression) of trade cycle, income and output fall leading to cyclical unemployment.
(ii) It is caused by deficiency of effective demand
Structural unemployment:
(i) Unemployment due to massive and deep rooted changes in economic structure leads to structural unemployment.
(ii) Lack of demand for the product or shift in demand to other products cause this type of unemployment.
(iii) (e.g.) rise in demand for mobile phones has adversely affected the demand for cameras, tape recorders
Disguised unemployment:
(i) It occurs in agriculture when more people are there than required. Even if some workers are withdrawn, production does not suffer.
Actual marginal productivity is zero, less or negative.
(i) Seasonal unemployment
1. In agriculture and agro based industries like sugar, production activities are carried out only in some seasons.
2. These industries offer employment only during that season in a year.
3. People remain unemployed during the off season.
4. Seasonal unemployment takes place from demand side also (eg) ice cream industry, holiday resorts
(ii) Frictional unemployment (Temporary unemployment)
1. It arises due to imbalance between supply of labour and demand for labour.
2. It is because of immobility of labour, lack of necessary skills, break down of machinery, shortage of raw materials.
3. The persons who lose jobs and in search of jobs also come under frictional unemployment
(iii) Educated unemployment
1. Educated people are underemployed or unemployed when qualification does not match the job.
2. Faulty education system, lack of employable skills, mass student turnout and preference for white collar jobs are highly responsible for educated unemployment.