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Macro Economics
Notes 1.1.3 Post Keynesian Macro Economics
Post-Keynesians are highly concerned with short-term economic growth as induced by aggregate
demand. For them, the adjustment process of the economy to equilibrium conditions is not so
"automatic" as neoclassical economist's claimed because it largely depends on the economic
agent's interpretation of both the past and expectations for the future all in the midst of a
decision-making setting involving complex interdependencies and unforeseen factors. As a
result of these beliefs, post-Keynesians essentially deny relevance of conventional equilibrium
analysis.
They argue that saving is passively linked to changes in level of income, and investment is
highly correlated with capitalists' expectations for the future. Another area where post-Keynesians
have divergent economic thought from orthodoxy has to do with their belief in the endogeneity
of money. For them, post-Keynesians stress the fact that real commodity and labor flows are
expressed in the economy as monetary flows.
Self Assessment
Fill in the blanks:
1. ....................... states that supply creates its own demand and over-production is impossible.
2. Price itself is measured in terms of .......................
3. General Equilibrium theory was given by.......................
4. The concept of 'laissez faire' was given by.......................
5. Post Keynesians argue that saving is passively linked to changes in level of .......................
1.2 Importance of Macro Economics
Over the decades that followed up to the present, the interactions of economic events, economic
policy, and macro economic theory have created a fascinating story integral to the life and
politics of national economies around the world. The following statements assert the importance
of macro economics:
It explains the working of the economic system as a whole.
It examines the aggregate behaviour of Macro Economics entities like firms, households
and the government.
Its knowledge is indispensable for the policy-makers for formulating macro-economic
policies such as monetary policy, fiscal policy, industrial policy, exchange rate policy,
income policy, etc.
It is very useful to the planner for preparing economic plans for the country's development.
It is helpful in international comparison.
Example: Macro Economic data like national income, consumption, saving-income ratio,
etc. are required for a comparative study of different countries.
It explains economic dynamism and intricate interrelationship among Macro Economic
variable, such as price level, income, output and employment.
Its study facilities overall purposes of control and prediction.
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