Keynes Theory of Income and Employment - 3130 Words

KEYNES THEORY OF INCOME AND EMPLOYMENT CONTENT OF REPORT †¢ CLASSICAL THEORY OF EMPLOYMENT †¢ KEYNES CRITICISM OF CLASSICAL THEORY OF EMPLOYMENT †¢ KEYNES THEORY OF INCOME AND EMPLOYMENT †¢ SIGNIFICANCE OF KEYNES THEORY †¢ Criticism on Keynes’ Theory KEYNES THEORY OF INCOME AND EMPLOYMENT The theories of employment are broadly classified into two: (a) Classical theory of employment (b) Keynesian theory of employment. The classical theory assumed the prevalence of full employment. The ‘Great Depression’ of 1929 to 1934, engulfing the entire world in widespread unemployment, low output and low national income, for about five years, upset the classical theorists. This gives rise to†¦show more content†¦According to Say, the aggregate supply of commodities in the economy would be exactly equal to aggregate demand. If there is any deficiency in the demand, it would be temporary and it would be ultimately equal to aggregate supply. Therefore, the employment of more resources will always be profitable and will take to the point of full employment. 7. According to Say’s Law, there will always be a sufficient rate of total spending so as to keep all resources fully employed. Most of the income is spent on consumer goods and a par of it is saved. 8. The classical economists are of the view that all the savings are spent automatically on investment goods. Savings and inves tments are interchangeable words and are equal to each other. 9. Since saving is another form of spending, according to classical theory, all income is spent partly for consumption and partly for investment. 10. If there is any gap between saving and investment, the rate of interest brings about equality between the two. Basic Assumptions of Say’s Law:- (a) Perfectly competitive market and free exchange economy. (b) Free flow of money incomes. All the savings must be immediately invested and all the income must be immediately spent. (c) Savings are equal to investment and equality must bring about by flexible interest rate. (d) No intervention of government in market operations, i.e., a laissez faire economy, and there is no government expenditure, taxation andShow MoreRelatedJohn Maynard Keynes Transformed Economics In The 20Th Century1507 Words   |  7 PagesJohn Maynard Keynes transformed economics in the 20th century by challenging traditionalist thinking and the postulates that underpinned their theories. Keynes disagreed with the laissez faire attitude of the classical thinkers, and argued for greater government intervention due to his belief that the focus should be on demand side macroeconomics rather than supply side. This belief transpired because of the Wall Street Crash of 1929 and the subsequent depression that highlighted the shortcomingsRead MoreClassical Political Economy Of Social Democracy1288 Words   |  6 Pages John Maynard Keynes Jose Antonio Cova Principles of Economics (Macro) 2013 Professor Sealey September 27,2014 Keynes, one of the bastions of classical political economy of social democracy, was born in 1883 in Cambridge. After studying at Eton and graduating as an economist at Cambridge University, he went to work in the British India Office. Contact with the performance of the Indian economy was the basis of his first work, the money and finance in India, published in 1913 and well knownRead MoreThe Keynesian Era During The Middle Of The Nineteenth Century1720 Words   |  7 Pagesnineteenth century, economists Adam Smith, David Ricardo, Thomas Mathus, and John Stuart Mill all shared somewhat similar economic views of the world. Some of the main concepts covered during this time included the division of labor, theories of rent, value, and distribution, theories of market â€Å"gluts† and population, and opportunity cost, competition, and trade. These classical economists believed capitalism was the foundation for an efficient economy where little to no government intervention was re cognizedRead MoreJohn Maynard Keynes : The Father Of Macroeconomics1502 Words   |  7 PagesAbstract John Maynard Keynes, also known as the ‘Father of Macroeconomics’, is a twentieth century economist, whose impact on economic theories has proven substantial contribution to reconstructing of economical values. He had influential individuals who helped intrigue and develop his interests in economic. Keynes interests were beyond economics; he took active stance on proposing post-war monetary funds, important for Germany’s reparation and reconstruction funds after World War II. Through hisRead MoreKeynes Macroeconomic Theory Essay1181 Words   |  5 Pageseconomics began to see a change and shift of ideas. These ideas were brought to the front by John Maynard Keynes, who in 1936 transformed much of the modern economics by a single book The General Theory of Employment, Interest and Money. Keynes also wrote other titles as well as ‘A Tract on Monetary Reform (1923) which was an attempt to secure a monetary policy instead of the gold standard. Keynes (2002) believed that the stable economy of Britain was more desirable than the stable value of the poundRead MoreKayne vs Hayek1370 Words   |  6 PagesUdomphorn ID# 5380040 Macroeconomics Mr. Rattakarn Komonrat Keynes vs. Hayek Macroeconomics is a branch of economics dealing with the performance, structure, behavior, and decision-making of the whole economy. Macroeconomists study aggregated indicators such as GDP, unemployment rates, and price indices to understand how the whole economy functions. They develop models that explain the relationship between such factors as national income, output, consumption, unemployment, inflation, savings, investmentRead MoreSays law Essay1157 Words   |  5 Pages ECOP2612 ESSAY What is Say’s law? Compare and contrast the role that it plays in the Classical approach and Keynes’ approach. Draw the implications for the design of monetary and fiscal policies to stabilize an economy. One of the most highly contested and controversial economic concepts is Says law, or the law of markets, an economic theory associated with French economist and businessman Jean-Baptiste Say. The law itself is embedded in ambiguity, and is usually associated as being oneRead MoreHow the Economy Works712 Words   |  3 PagesQuantity Theory of Money is an economic theory that states that the money supply is an economy is directly proportional to the general price level. This theory is commonly associated with neoclassical economics. Milton Friedman, a famous economist, modified this quantity theory of money by formulating a theory called the general theory of asset demand, where money demand is a function of wealth and returns of other assets relative to money. The Keynesian school also came up with a different theory ofRead MoreIs Lm Model On Economics Of The Twentieth Century?1037 Words   |  5 PagesModel Mr. Keynes and the â€Å"Classics†; A Suggested Interpretation is a classic journal written by John R. Hicks, who has left huge impact on Economics of the twentieth century. John Hicks introduced the beginning of â€Å"IS-LM economic model†, which set up basic system of Macroeconomics to the world through this journal. This journal could be considered as an attempt to interpret and reassess Mr. Keynes’ General Theory of Empoyment within the typical â€Å"classic† theory framework and compare Keynes’ view andRead MoreNeoclassical Theory Of Keynesian Theory1578 Words   |  7 Pagesfrom both the Neoclassical school of economic thought and Keynes’ General Theory. The UK Cambridge Post Keynesian view of economics also contains elements from both these schools, yet the Neoclassical Keynesian synthesis and the UK Cambridge Keynesian bodies of economic thought differ in their views, methods and ideas. The two schools utilise different models to rea ch the similar conclusion that the economy will tend towards full employment equilibrium in a long run situation – a conclusion that complements