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Unit-13: Keynesian Approach

condition is found in mast Country. Keynes Currency principle is valid in both the full Notes
employment and less employment conditions. In less employment condition, the resulting
of the increment in quantity of currency there is increment in employment and production.
But after full employment condition price-level rose on the increment in currency quantity.
Keynes also considers that in the partial employment condition also, because of the partialities
of market, the price-level can also be increased with increment in production. But such
increment is very limited.
3. Integration between Monetary Theory and Theory of Output: Lard Keynes also integrated
Monetary Theory with Production Theory. The change in quantity of Currency affects the
interest rate and the resulting Investment quantity is also changed. So in economy production
quantity is also changed. Because of change in production quantity, there were also changed
in cost of production and price-level.
4. Proper Explanation of the Causal Process: This theory explains causal process relation more
scientifically instead of Currency Magnitude Theory. According to Keynes this is the demerit
of Currency Magnitude Theory that those effects of currency, which occurs on interest rate,
investment, production and employment, are fully ignored. The entire concentration is kept
on total quantity and prices of currency in this theory. But in Keynes theory these all elements
are kept in concentration. According to this theory supply of currency on being greater
than demand decreases the interest rate. The resulting, there is increment in investment
on increasing the investment, the demand of production equipment is increased, and the
prices are increased on increasing the cost of production. So currency quantity affects prices
indirectly. This explanation is truly more realistic.
5. Better Guide of Economic Policies: Keynes Theory is more behavioural in comparison to
Currency Magnitude Theory and also a better guide of Economic Policies. According to the
Currency Magnitude Theory, every increment in Currency quantity becomes the cause of
increment or inflation in prices. But according to Keynes the increment in quantity on money
generally made after money inflation after full employment. If the condition of recession or
unemployment is found in any country than to overcome from this condition the financial
arrangement of loss or the policy of credit expansion can be adopted without any fear. So
because of increment in the supply of money price-level will increase, is not any dangerous
thing.
In brief, Keynes has this view that supply of currency is an equipment of economic
development till when the condition of full employment is not found. After the found of
the condition of full employment on supplying of currency the problem of increment in
Price-level is raised.

Task Express your views about Keynesian Theory.

Key Points

y Value of Money: The number of gotten commodities or services in exchange with a unit
money, is called the Value of this unit of money.
y Value of Money and Price Level: Value of Money and Price-level are inversely related. i.e.,
1
Value of Money = Price Level

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