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Keynes

John Maynard Keynes is the author of The General Theory of Employment, Interest, and Money, which is a work that provided significant ideas to the study of macroeconomics. Keynesian economics focuses on aggregate demand and how it impacts national output and inflation. It is a method of analyzing the behaviour of aggregate economic variables such as interest rates and employment.

Keynes developed his analytic method as a way to understand the Great Depression¹. It became known as the “Keynesian Revolution” because it introduced new ideas to economics, primarily concerning how a market economy reacts to temporary shocks¹.

Keynes asserted that the market economy would not naturally restore itself to full employment. Keynes also introduced the ideas of consumption function, the marginal efficiency of capital, the principle of effective demand, as well as others². He also introduced the idea that changes in aggregate demand will have the greatest short-run effect on real output and employment, instead of on prices.

The main assertion in Keynes’s The General Theory is that employment is determined by aggregate demand and not the price of labour, as neoclassical economics claims. In Keynes’s book, he found contradictions in the classical theory and worked towards expanding on the inaccuracies in the classical and neoclassical theory².

 

References:

1. Blinder, Alan S. “Keynes After Lucas.” Eastern Economic Journal 12, no. 3 (1986): 209–216.

2. Gordon, Robert J. “What Is New-Keynesian Economics?” Journal of Economic Literature 28, no. 3 (1990): 1115–1171.

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