to ensure that sufficient demand is maintained in the goods market. This also leads to the Keynesian multiplier which suggests that every dollar spent on investment or government creates a multiplier effect and leads to an increased expenditure of more than one dollar. Aggregate supply An economy is said to be in equilibrium when aggregate expenditure is equal to aggregate supply (production) in the economy. According to Keynes, the economy does not stay in a perpetual state of equilibrium but aggregate expenditure and aggregate supply adjust each other towards equilibrium. When there is an excess supply over expenditure, and hence over demand, there is an inventory leftover with the producers, which leads to a reduction in either the prices or the quantity of output and hence reducing the total output (GDP) of the economy. On the other hand, if there is an excess of expenditure over supply, then there is excess demand leading to an increase in prices or output. Hence the economy constantly keeps shifting between excess supply (inventory) and excess demand. Thus, the economy is constantly moving towards an equilibrium between aggregate expenditure and aggregate supply. In an under-employment equilibrium the Keynesian cross refers to the point of intersection of the aggregate supply and the aggregate expenditure curve. A rise in expenditure by either Consumption, Investment or the Government or an increase in exports or a decrease in imports leads to a rise in the aggregate expenditure and thus pushes the economy towards a higher equilibrium and thus reaching a higher level towards the potential GDP. See also Aggregate income References Parry G., and Kemp S., (2009) Discovering Economics Tactic Publications, South Perth. Gross domestic product Macroeconomic aggregates Expenditure