A General Microeconomic Foundation for Demand Deficiency

Abstract

Keynesian economics has lasted for decades and successfully provided policy suggestions for government to deal with economic recession, so it must include some elements of truth. Demand deficiency is one of its important concepts, but so far there is no satisfactory explanation to support this concept. Based on the finite nature of the utility of an individual, this paper reveals the microeconomic foundation for demand deficiency - the constraint in aggregate demand, and explores its implications. This paper has also constructed an aggregate demand function including demand constraint and estimated it by employing US time series data and DOLS method.