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A PROJECT
ON
Theories of Income, Output & Employment
PREPARED BYANURAG GELANI
AKANKSHA GOSWAMI
1
STUDENT OF BHILAI BUSINESS SCHOOL BHILAI CHATTISHGARH
Theories of income, output & employment:
Classical Keynesian
CONTENTS
Introduction
Keynesians – Beliefs
Keynesians - Theories
Theory of Income, output & Employment
Findings and Conclusion
INTRODUCTION
Keynesian economists are, not surprisingly, so named because they are advocates of the work of John Maynard Keynes.
Much of his work took place at the time of the Great Depression in the 1930s.
His best known work was the 'General Theory of Employment, Interest & Money' which was published in 1936
KEYNESIANS - BELIEFS
In essence Keynes argued that markets would not automatically lead to full-employment equilibrium, but in fact the
economy could settle in equilibrium at any level of unemployment.
Keynesian beliefs can be illustrated in terms of the circular flow of income. If there was disequilibrium between leakages and injections, then classical economists believed that prices
would adjust to restore the equilibrium.
Keynes, however, believed that the level of output (in other words National Income) would adjust.
KEYNESIANS - THEORIES
Keynes argued that relying on markets to get to full employment was not a good idea. He believed that the economy could settle at any equilibrium and that there would not be automatic changes in markets to correct this situation. The main Keynesian theories used to justify this view were: * The labour market * The market for loan able funds (money market) * The Multiplier * Keynesian inflation theory * Theory of Income, Output & Employment
Theory of Income, output & Employment
According to Keynes the equilibrium level of employment is determined by the aggregate demand and aggregate supply functions.
Aggregate supply function is a schedule of the various amount of money, which the entrepreneurs in an economy must
receive from the sale of outputs at various level of employment.
The point of intersection of the aggregate demand and aggregate supply curves gives the equilibrium level of employment.
Theory of Income, output & Employment Cont.
Employment
Receipts
O
E
AS
AD
In Figure, equilibrium level of employment is given by point E, the point of intersection of the aggregate demand and aggregate supply curves.
Entrepreneurs would not expand employment beyond equilibrium level.
Findings And Conclusion
Keynes assumed that in the short run, supply condition remains the same. As one can take supply side to be given, Keynes focused on the demand side. In the short run thus it is the level of aggregate demand that determined the level of employment and output. Given the supply side, the higher the aggregate demand, the higher would be the equilibrium level of employment and income, until the full employment is reached.
