The objective of the dissertation is to delineate the microfoundations of effective demand from an Institutionalist and Post Keynesian perspective. To this end, three themes are organically and sequentially structured. First, the methodology of heterodox microfoundations is established in order to overcome fallacious neoclassical microfoundations and to provide realistic foundations for the analysis of a monetary production economy by linking micro- and macro-reality. In this context, Veble's micro-macro synthetic framework is examined to support the methodological ground for heterodox microfoundations. Second, the theory of the business enterprise is investigated with the emphasis on pricing and investment mechanisms of the business enterprise. The microfoundations of the business enterprise shed light on the elaboration of the principle of effective demand in a micro-macro synthetic manner. Finally, it is argued that the structure of economy represented by the input-output table and the causal mechanisms driven by households, business enterprises, and the State are to be combined so as to better analyze the generation of and the changes in output, employment, and income. As a result, the microfoundations of effective demand enhance the explanatory power of the principle of effective demand.