Determination of output and employment

What decides how much an economy produces and how many people work? The classical answer: flexible wages and prices always clear markets, so the economy tends to full employment and output is set by supply (labour, capital, technology). Keynes's answer: demand can fall short, wages may not fall fast enough, and the economy can rest below full employment. Worked example: in the simplest Keynesian cross with consumption C = 100 + 0.8Y and investment 200, equilibrium output solves Y = 100 + 0.8Y + 200, giving Y = 1500 — and if full-employment output is 1800, the gap is a demand deficiency of 300.