Keynes Theory of Income and Employment

3130 Words13 Pages
KEYNES THEORY OF INCOME AND EMPLOYMENT

CONTENT OF REPORT

• CLASSICAL THEORY OF EMPLOYMENT

• KEYNES CRITICISM OF CLASSICAL THEORY OF EMPLOYMENT

• KEYNES THEORY OF INCOME AND EMPLOYMENT

• SIGNIFICANCE OF KEYNES THEORY

• Criticism on Keynes’ Theory

KEYNES THEORY OF INCOME AND EMPLOYMENT

The theories of employment are broadly classified into two: (a) Classical theory of employment (b) Keynesian theory of employment.
The classical theory assumed the prevalence of full employment. The ‘Great Depression’ of 1929 to 1934, engulfing the entire world in widespread unemployment, low output and low national income, for about five years, upset the classical theorists. This gives rise to
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According to Say, the aggregate supply of commodities in the economy would be exactly equal to aggregate demand. If there is any deficiency in the demand, it would be temporary and it would be ultimately equal to aggregate supply. Therefore, the employment of more resources will always be profitable and will take to the point of full employment. 7. According to Say’s Law, there will always be a sufficient rate of total spending so as to keep all resources fully employed. Most of the income is spent on consumer goods and a par of it is saved. 8. The classical economists are of the view that all the savings are spent automatically on investment goods. Savings and investments are interchangeable words and are equal to each other. 9. Since saving is another form of spending, according to classical theory, all income is spent partly for consumption and partly for investment. 10. If there is any gap between saving and investment, the rate of interest brings about equality between the two.
Basic Assumptions of Say’s Law:- (a) Perfectly competitive market and free exchange economy. (b) Free flow of money incomes. All the savings must be immediately invested and all the income must be immediately spent. (c) Savings are equal to investment and equality must bring about by flexible interest rate. (d) No intervention of government in market operations, i.e., a laissez faire economy, and there is no government expenditure, taxation and
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