Keynes Full General Theory Of Income As Well As Employment

Keynes General Theory of Income together with Employment

(a) Total Employment depends on Total output, which is equal to full income. So National Income = Total Employment.

(b) Total Value of work depends on Effective Demand.

(c) Effective Demand is composed of Aggregate Demand Function (ADF) together with Aggregate Supply Function (ASF). The Effective need at the equilibrium cost where ADF = ASF.

(d) ASF is given inward the Short period, together with ADF is the pregnant element on Keynes's theory.

(e) ADF depends on full expenditure, which is composed of Consumption together with Investment Function.

(f) Consumption Function depends on :- (i) Size of Income, (ii) Propensity to Consume. Keynes assumed consumption business office to locomote stable inward the curt run.

(g) Investment Function depends on :- (i) Marginal Efficiency of Capital (MEC), (ii) Rate of Interest (Ri). Keynes considered Investment Function equally a highly unstable factor.

(h) MEC is determined yesteryear :- (i) Prospective Yield, (ii) Supply cost of Capital Assets. Keynes considered MEC equally a highly fluctuating phenomenon because it depends on concern psychology.

(i) Rate of Interest (Ri) is determined yesteryear Supply of Money together with Demand for Money (Liquidity Preference). Supply of coin is regulated yesteryear monetary authorities. Liquidity preference is determined yesteryear Transaction, Precautionary, Speculative motives, etc. Keynes considered charge per unit of measurement of involvement equally a stable phenomenon.

(j) According to Keynes, Investment Expenditure is the primary determinant of the score of employment. The greater the departure betwixt MEC together with Ri the higher the inducement to invest together with vive-versa. Since Rate of Interest (Ri) is stable inward the curt run, MEC, which is unstable, is the primary determinant of Investment Function.

(k) The theory concludes that to heighten employment, effective need should locomote raised. So, Investment Expenditure must locomote raised yesteryear filling the gap betwixt an increase inward investment together with consumption. Lack of Effective Demand leads to unemployment.