Ashraf Islam -‐ Beatrice Irullo -‐ Veronica Jenvild
Keynes VS
the Classics
16-‐10-‐14
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‘There is, therefore, no ground for the belief that a
flexible wage policy is capable of maintaining a state
of conRnuous full employment… The economic system
cannot be made self-‐adjusRng along these lines’.
(Keynes 1936: 267)
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The classics
Labour market
Supply
Demand
Market mechanism
Full employment
Say’s Law
Supply = Demand
Barter economy
Weak version à implied full employment
Strong version à guaranteed
QTM
Price level determinaRon
Classical dichotomy
EffecRveness of monetary policy to increase output/
employment
Keynes effect
W P Md r
Hillier & Vane, Modern Macroeconomics ,2005, p.115, graph (a)
W P Md r I Y
unemployment
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NAIRU
Thank you!
Bibliography • Hillier B., The Macroeconomic debate. Models of the closed
and open Economy, Oxford and Cambridge: Basil Blacwell, 1991. ch 2.
• Snowdon, B & Vane H. R., Modern Macroeconomics: Its origins, development and current state, Cheltenham: Edward Elgar, 2005. ch.2.
• Trevithick, J. A., Involuntary unemployment. Macroeconomics from a Keynesian persecDve, London: Harvester Wheatsheaf, 1992. ch 4.
• Keynes, J. M., The general theory of employment, interest and money, 1936. ch.19.