Keynes’ Principle of Effective Demand: A Statistical Mechanics Approach

Abstract

This paper constructs a model of the macroeconomy using Ensemble Theory. This approach, although more complex, is far more rewarding since more rigorous results are obtained. In particular, this model successfully proves Keynes’ Principle of Effective demand. This is, raising demand of goods in the economy boosts its Gross Domestic Product (GDP). Moreover, the model is calibrated with Spanish data from 2019 and 2020 to further enhance its robustness. A more broad aim of this paper is to expand the Economics toolkit by incorporating Statistical Mechanics concepts, in order to get Economics closer to the analysis of natural sciences.