This pathbreaking book fundamentally redirects macroeconomic theory and offers new innovative measures for reducing unemployment. John Hudson argues that a genuine thoery of effective supply must be added to Keynes' theory of effective demand. It is no use boosting demand in a recession if firms no longer have the capacity to meet the increase. This is illustrated by modelling dynamically a complete economy, including the actions of more than a thousand individual consumers and workers and fifty firms. The policy conclusions are controversial. John Hudson stresses the need to retain produtive capacity in a recession, even if this means subsidising loss-making industries, and to expand both effective supply and demand as the recession drwas to a close. This exciting and original book will be essential reading for courses on labour economics and macro-economic theory.