Page 59 - DECO402_Macro Economics

Macroeconomic Theory

Notes Keynes supported that thing that states interfere for adjust the demand and supply under
economies by the median of exchequer and oral method.
4. Equality between Saving and Investment through Income Changes: it was the believe of
classical economist that saving and investment are equal at the level of full employment and
if there any deviation, then the mechanism of the rate of interest took similarity on them.
According to Keynes’, the level of saving is dependent on the level of income. So as the
rate of interest of investment are also decided the productivity of frontier. If the business
expectancy is less then in the low rate of interest, investment will not increase. If saving
increased by investment, then its mean that people are spent less on consumption. Resultantly
the demand reduced, and hyper production is start and investment income and production
reduced. By this saving will reduced and there are established similarity in investment and
savings on income.
5. Refutation of Wage Cut: Keynes’ had disclaimer this principle of Pigou that full employment
can be get in economy to cut the currency-wage. In the analysis of Pigou the big doubt is that
the logic of specific industry is apply on all economy. In one industry the decrement in the
rate of wage can increase the employment to increase the cost and demand but this type of
employment is reduced for all economy. When normal wage is cut, then the income of labour
reduced resultantly total demand reduced and employment is also reduced.
At behaviourally Keynes’ never supported the policy of cut in wage. Labours established
a strong trade union in present era which protests the policy of reduced wage. They will
strike on it protest. Resultantly the disturbance generate in economies, by that income will
reduce. Now, social justice demand is also that if profit is not disturbed then wage should
not be reduced.
Keynes also not accepted that opinion that there are directly proportionate relation among
currency wage and actual wage. According to it, they have opposite relation among it. When
total wage are reduced, then actual wage are increased and vice versa. So as the believed
of the traditions that, as not happen and being the reduction on currency-wage the actual
wages are not reduce but increase, the cost of wage and price will more reduced to cut
the currency- wage. So the opinions of traditions are not outstaying that employment will
increased to reduce the actual wage. But the believe of Keynes was that employment can
increased more to reduce the currency-wage by the median of currency and exchequer. Now
the institutional protest is stronger of decrement of prices and wage so that type of policy
cannot continue in trend.
6. Support of State Intervention: Keynes was not satisfied by Pigou's opinion that “The failure
of temporary is responsible to fully use of ours productive power.” Capitalism arrangement
is that if it fells alone, then it is not able to use full use of production power. So it is necessary
the interference of state. State can directly invested to increase the level of economic activity,
or supplemented the self-investment. We make laws for determination of wages of workers,
relief to the workers through medium of social security measures and they affiliated the
trade unions. So as the opinion of Dillard, “To protest the rule of labour and labour union
are understood good at the sight of economics, but it is bad at the political sight." So Keynes
supported the states processing for completely use the source of economy for available the
full employment.
7. Short-run Analysis: In the long duration Keynes believed in full employment. Keynes had no
patience that he can wait for ling time, because he believed that “After long time we all die.”
As the objective of Shumpeter, “His lofe philosophy was fundamentally short duration.” His
analysis was limited till short duration sources. Apposite to traditionalists he believed that
nature, behaviour, method of production and labour are certain during short time he leave
the long duration impact on demand. Assume that consumption demand is certain, he forced

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