Page 67 - DECO402_Macro Economics

Macroeconomic Theory

Notes is responsible for under-employment in
economy. In figure 6.4, an economy will get
the full employment situation to increase
its appropriation from MM .
1
It investment is inspired to give discount
as tax and decrement in institutional
borrowing cost to investors. In the work
of social welfare should also invest by Expenditure or Sales income
government. Full employment is important
at one limit, because after that production
or employment are unchanged to increase
the effective demand. If aggregate
demand is increase after the point of full
employment, then raise the situation of
currency inflation, because employment
or production is not increases after full Employment
employment.
Fig 6.4: Shifting in Equilibruim
Self Assessment

State whether the following statements are True or False:
7. Employment production and the level of income are dicided by effective demand.
8. When aggregate demand curve is rise up side, then the level of employment is increase.
9. Aggregate supply curve can be below to increase the productivity of labour in long
period.
10. The availability of change is no-exist in aggregate supply curve in long period.

6.4 Comparison of Classical and Keynesian Theory of Employment

The employment principle of Keynes is different in many forms classical employment principle.
(i) Classical economist believes that an economy is on stable equilibrium on full employment
point as invariably. So classical principle is related with special situation of full employment,
and ignores the possibility of normal unemployment. Apposite that the principle of Keynes,
which indicates works in all situation of economy (full employment, under-employment and
unemployment). According to Keynes- the situation of full employment is very less or as
exception. Normally economy is in equilibrium on low level from full employment level.
(ii) Classical economist believed that if full employment situation is not in economy, then
equilibrium can be established to decrease the wage. But Keynes considers that idea
unreal and impractical. According to Keynes if the rate of wage is reduces in a special
entrepreneurship then employment can be increase. But if it should be in whole economy
then it will reduce the income, production and employment.

Task Express his idea on the employment principle of Keynes.

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