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JOHN MAYNARD KEYNES CONTRIBUTION TO MACROECONOMICS Name: Macroeconomics Institution Instructor Date: 4/24/2013 Keynes General theory John Maynard Keynes is a very prolific contributor to modern macroeconomics. He played a very big role in the development of macroeconomics theories that are in use up to date…
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John Maynard Keynes contribution to macro economics
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Download file to see previous pages All these above theories he made when launching his book in 1936 “the general theory of employment, money and interest.” Keynes believed that the classical approach to macroeconomics was erroneous and had been interfered with by the outbreak of world war one. He also believed that the classical approach’s belief that the balance between supply and demand would ensure employment for everyone was false. This was caused by inadequate investment and the psychology held by many people about saving. People had fear of investments due to the looming uncertainties caused especially by the war. The classical approach had thus grown absurd and this is why John Keynes embarked on the project to come up with new economic theories to save the situation. The solution that Keynes brought to the above problem of the private fear of investment was to bring in public investment from the government albeit on deficit spending. This would in turn create jobs and soon the government would pay off their debts. This therefore laid a foundation for macro- economics as it viewed the entire economy as one focusing on the government’s role in the economy as a whole. His research helped come up with ways that were used to measure an economy’s productivity. ...
How Keynes went against say’s law Jean-Baptiste Say, a French man had earlier come up with a theory of his own. This theory stated that it is impossible for supply to outrun demand as supply is brought about by demand any way, which was part of one of the classical approaches to macro-economics that tried to explain the reasons behind recessions and depressions. Say stated that the main cause of a glut (overabundance of a product in the market) is the producer’s illiteracy on the nature of the demand. Another scholar - David Ricardo, furthered this argument to state that recessions are caused by overproduction of goods that are not what the customers wanted. Goods are therefore not sold because the goods produced are not what the customers wanted. Customer satisfaction is a key factor in matters production; therefore, a product cannot be bought if it does not satisfy customer requirements. Keynes misinterprets Say’s law by saying that supply creates its own demand; this in essence interprets the law to state that whatever will be produced will be consumed which is not the case. Keynes omits the fact that in order for aggregate supply to meet the aggregate demand, the goods supplied must be those that are demanded by the market. This is how Keynes basically went against Say’s law. Keynes therefore, in his book “the general theory” states that deficiencies in demand are the main cause of economic recessions. The great misinterpretation of Keynes in Say’s laws was what created his legacy up until more economists came up and deduced the above as they made his theory not hold anymore. Economists nowadays have thrown almost all of Keynes theories out of the window and ...Download file to see next pagesRead More
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