above, deficiency of demand in the aggregate market for goods and services (known by the short-hand term as the goods market) was ruled out. It was believed that any discrepancy between planned savings and planned investment would be eliminated by changes in the rate of interest. Thus, for example, if planned savings exceeded planned investment, the rate of interest would fall, which would reduce the supply of savings and, at the same time, increase the desire of companies to borrow money to invest in machines, buildings, and so on. In other words, changes in the rate of interest would provide the equilibrating force bringing the overall (aggregate) goods market into equilibrium in the same way that changes in, say, the price of apples would be the equilibrating force bringing the supply and demand for apples into equilibrium.In the Keynesian model, changes in the level of output and income bring planned savings and investment into equilibrium, and thereby lead to equilibrium in total national income and output. However, this equilibrium level of income and output is not necessarily the level of output at which the demand for labor equals the supply of labor. Furthermore, Keynes maintained, a cut in wages in such a situation would not help eliminate unemployment. Keynes was not the first economist to explain unemployment in terms of an aggregate deficiency of demand in the goods market. The 19th-century British economist Thomas Robert Malthus and others had advanced similar explanations.The Keynesian revolution implied that, in the terminology of macroeconomics, the goods market could be at an underemployment equilibrium, in that it did not ensure equilibrium in the labor market. In such a labor market, employers would not employ workers up to the point where it would have been profitable for them to do so had there been adequate demand for their output. Concepts of underemployment equilibrium, and related concepts of constrained deman...
