ABSTRACT
In classical economic theory, an economy should never go into a slump—or at least it should not stay in one very long. Any deficiency in aggregate expenditure would be quickly counteracted by smooth adjustments in the market for loanable funds. One of the key debates in macroeconomic policy is between Keynesians, who believe that aggregate demand needs active guidance if the economy is to be stable, and more classically oriented economists, who believe that aggregate demand can take care of itself. Aggregate expenditure in the economy depends on the spending behavior of the economic actors in the economy. Aggregate expenditure will still be equal to the full-employment level—though now it is made up of somewhat less investment and somewhat more consumption than before the shift in investment plans. Many things may affect the level of aggregate consumption in an economy, but one thing that very clearly affects it is the level of current aggregate income.
