Page 68 - DECO402_Macro Economics

Unit-6: Keynesian Theory of Employment

(iii) In classical system the increment in currency supply takes the nature of currency inflation. Notes
Whenever according to Keynes the increment in the currency supply after full employment
creates the currency inflation.
(iv) According to classical economist the analysis of interest-investment is the instrument of decide
the interest rate. Any change in saving interest does inequality in investment or savings.
Apposite that Keynes consider the analysis of interest-investment is the instrument of decide
the level of income and employment. If savings more than investment, then consumption
expenses is less. So demand will reduce. If production and saving are responsible for the
decrement in the investment, income, interest and employment. So when the atmosphere of
business is disappointed then the decrement in interest rate is not increase the investment.
So the situation of equilibrium can possible among savings and investment by change the
level of income. So the principle of Keynes is more useful for the analysis of more real and
economic development.
(v) Distinguished economist considers that the level of economic activities can change by the
change of the quantity of currency and interest rate. They conformable to stops the use of
monetary policy, unemployment, business depression etc. Apposite that Keynes kept believed
that to solve all problems by policy (public expenses, financial arrangement of loss etc).
(vi) Classical principle considers most important to conformable on decide the equilibrium level
of income and employment in any economy. The assumption of that principle that supply
creates its own demand. Apposite that Keynes considers supply constant and consider the
decider of equilibrium to demand of economy, so in Keynes principle, supply is a stock
variables.
(vii) The decision of savings and investment are take in one division with in classical principle.
So saving and investment are equal. The similarity is established by interest rate being any
inequality in both. So interest rate keeps an important place in a classical arrangement.
Apposite that Keynes consider interest the return of sacrifice and less important to give it.
According to it which changes are perform in any economy; it is according to the change
of income and expenses, not according to the change interest rate. With it in the situation
of equilibrium in economy, savings and investment will be equal, because savings and
investment are according to different objectives by different divisions.
(viii) There are two separate principle by classical economist—one is for currency, second is value
and production level. But Keynes presents a joint principle of currency principle, value and
production level. According to him this principle can not presents as separate principles,
because the quantity of currency is directly effect the level of employment, production and
income.
(ix) Classical principles are only active in long period. Keynes is not understand that principle
and rendering such principle that are active in short period.

6.5 Summary

y Aggregate supply is the second decider of equilibrium of the level of employment and income.
It indicates addition of total things and services produced in economy. If it assumes that all
things and services produced in economy are available for consumption and investment, then
total supply will be equals to the national income and national product. This national product
will be equals to the four sources (land, labour, capital and entrepreneur) of production.
Aggregate supply or value is that anticipated value, it is receive to firms for production on a
certain scale and employed the labours.

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