(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.

(i) Invention and innovations lead to the adoption of new techniques.
(ii) So existing workers are retrenched.
(iii) This is called technological unemployment.
(iv) It is due to the use of labour saving devices.

The major feature of rural unemployment is the existence of unemployment in the form of disguised unemployment and seasonal unemployment.

(i) The classical theory of employment is composed of different views of classical economists on the issue of income and employment in the economy.
(ii) Classical economists assumed that the economy operates as the live of full employment without inflation in the long period.
(iii) They also assumed that wages and prices of goods were flexible and the competitive market existed in the economy.

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) Aggregate supply refers to the value of total output of goods and services produced in an economy in a year ie national product or income.
(ii) The components of aggregate supply are:
(iii) Aggregate (desired) consumption expenditure (C)
(iv) Aggregate (desired) private savings (S)
(v) Net tax payments (T)
(vi) Personal (desired) transfer payments to the foreigners (Rf)
AS = C + S + T + Rf
In this figure 2 aggregate supply curves are drawn for the assumption of fixed money wages and variable wages.

Explanation
(i) Z Curve is linear (fixed money wages)
(ii) Z₁ curve is non-linear (wage rate increases with employment)
(iii) When full employment level of Nf is reached output cannot be increased by employing more men.
(iv) So aggregate supply curve becomes inelastic (Vertical straight line).
(v) In reality aggregate supply curve will be like Z₁ .
(vi) If prices are high and wages low, the producers will employ more labourers.
(vii) 4YAggregate supply is an important factor in determining the level of economic activity.

(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.

Introduction
According to J. B. Say "Supply creates its own demand"
Explanation
A person receives his income from production which is spent on the purchase of goods and services produced by others. For the economy as a whole, therefore, total production equals total income.
Criticisms
(i) According to Keynes, supply does not. create its demand. It is not applicable where demand does not increase as much as production increases.
(ii) Automatic adjustment process will not remove unemployment. Unemployment can be removed by increase in the rate of investment.
(iii) Money is not neutral. Individuals hold money for unforeseen contingencies, businessmen keep cash reserve for future activities.
(iv) Say's law is supply creates its own demand and there is no over production. Keynes said that over production is possible
(v) Keynes regards full employment as a special case because there is underemployment in capitalist economies.
(vi) State intervention is needed when there is over production and mass unemployment.

(b) Both A and R are true but R is not the correct explanation of A

(a) Both A and R are true and R is the Correct explanation of A

Macro approach to national problems.

J.B. Say