its a notes on keynesian theory gathered from various articles.
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John Maynard Keynes is without a doubt the most influential economist of the last 100 years. Keynesian economics is taught at every major University and practiced by every central bank throughout t...Full description
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IMPORTANCE OF ENGLISH IN EMPLOYMENT
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SUMMARY OF KEYNESIAN THEORY OF EMPLOYMENT
DETERMINENTS OF EMPLOYMENT AND INCOME
Level of output
Level of Employment
Aggregate Supply
Aggregate Demand
Consumption Demand
Investment Demand
Volatility of Investment Demand
LEVEL OF OUTPUT OR INCOME
L e v el o f o u t p u t o r In c o m e of a country depends on the l ev e l o f em p l o y m en t .
Given the capital stock and technology, greater the employment of labor, the higher the level of aggregate output or national income.
LEVEL OF EMPLOYMENT
T h e l ev e l o f em p l o y m en t depends on the magnitude of ef f ec t i v e d e m an d which is
the sum of consumption demand and investment demand at the point where aggregate supply curve intersects the aggregate demand curve.
AGGREGATE SUPPLY
A g g r e g at e s u p p l y of an economy depends on p h y s i c a l an d t e c h n i c a l c o n d i t i o n s o f production . Since these factors do not
change much in the short-run, aggregate supply curve remains constant in the shortrun. Aggregate supply curve slopes upward to the right as the level of employment increases. This is because with the increase in labor employment, the greater cost has to be incurred. Back
AGGREGATE DEMAND
A g g r e g at e d e m an d in a simple Keynesian Model consists of c o n s u m p t io n a n d investment demand . Since the
consumption demand increases with the increase in labor employment, aggregate demand curve also slopes upward to the right. In Keynesian Model, investment demand is regarded as autonomous of changes in income or employment. Back
CONSUMPTION DEMAND
C o n s u m p t i o n d em an d depends on p r o p en s i ty t o c o n s u m e on the one hand and d i s p o s a b le in c o m e on the other.
Propensity to consume of a community does not change much in the short-run. Therefore, consumption function which relates consumption demand with the level of income remains stable in the short-run. Back
INVESTMENT DEMAND
In v e s t m en t d e m a n d depends on the rate and m ar g i n a l ef f i c i en c y o f o f i n t er e s t capital . According to Keynes, rate of
interest is determined by supply of money and the state of liquidity preference. Marginal efficiency of capital (i.e. expected rate of profit) depends on the expected future yields or profit expectations of entrepreneurs on the one hand and replacement cost of capital on the other.
VOLATILITY OF INVESTMENT DEMAND
According to Keynes, while rate of interest is more or less sticky it is frequent changes in profit expectations of the entrepreneurs, that is, changes in marginal efficiency of capital that causes great deal of fluctuations in investment by entrepreneurs. I n v e s t m e n t d e m a n d i s t h u s h i g h l y v o l a ti le and causes recession and depression when it falls, and boom and prosperity when it increases significantly.
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DETERMINENTS OF EMPLOYMENT AND INCOME
DETERMINATION OF EMPLOYMENT
RAISING AGGREGATE DEMAND CURVE TO ACHIEVE FULL EMPLOYMENT
