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Hitesh Jhanji, Lovely Professional University Unit-6: Keynesian Theory of Employment

Unit-6: Keynesian Theory of Employment Notes

Contents
Objectives
Introduction
6.1 Keynesian Theory of Employment
6.2 Effective Demand
6.3 Equilibrium Determination
6.4 Comparison of Classical and Keynesian Theory of Employment
6.5 Summary
6.6 Keywords
6.7 Review Questions
6.8 Further Readings

Objectives

After studying this unit, students will be able to :
y To know the employment principle of Keynes,
y Study of effective demand,
y To know the equilibrium determination.

Introduction
In effective demand two things are similar (i) demand of consumption things (ii) demand of capitalism
things and investment demand. If the increment of consumption demand is more than the increment
of total income, then it difference show the unemployment in economy. For increment in income
and employment the difference in income and consumption can remove by investment. So the level
of employment is dependent on investment. So the effective demand is increase by investment for
increase the employment.

6.1 Keynesian Theory of Employment

Keynesian gave a special name to a famous principle, which applies on limited area of his normal
principle. According to him in the normal situation economic system based on self property, there
can happen any thing from detailed unemployment to full employment. He stricken to above from
his prosperous view point and developed economics to bringing revolution in economic idea and
policy.
J. M. Keynes was the first economist; he gave an arranged principle of employment. When in
1930 A.D., the famous principle failed he criticize it. In spite of very low interest rate, there was no
increment in investment at that time. At that time, Keynes presented a perception of an effective
demand for understanding the principle of income and employment of rendering effective demand.

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