According to John Maynard Keynes, employment depends upon

The correct answer is C, effective demand. In Keynes's theory the level of employment in an economy is fixed by effective demand, the level of total spending at which aggregate demand equals aggregate supply. Keynes set out this idea in The General Theory of Employment, Interest and Money in 1936, written during the Great Depression. He argued that firms hire workers only to produce what they expect to sell, so when total spending by households, firms and the government falls, output and employment fall with it, and an economy can stay stuck with unemployment. This rejected the classical belief, based on Say's law, that supply creates its own demand and that full employment comes on its own. Option A is wrong because aggregate demand on its own is a whole schedule; only the point where it meets aggregate supply, the effective demand, decides employment. Option B is wrong because stressing supply was the classical view that Keynes challenged. Option D is wrong because the rate of interest affects investment and so works only indirectly through demand. Exam tip: Keynes, General Theory, 1936: employment depends on effective demand, where AD equals AS.