Keynes General Theory of Income in addition to Employment
(a) Total Employment depends on Total output, which is equal to full income. So National Income = Total Employment.
(b) Total Value of occupation depends on Effective Demand.
(c) Effective Demand is composed of Aggregate Demand Function (ADF) in addition to Aggregate Supply Function (ASF). The Effective need at the equilibrium toll where ADF = ASF.
(d) ASF is given inwards the Short period, in addition to ADF is the pregnant element on Keynes's theory.
(e) ADF depends on full expenditure, which is composed of Consumption in addition to Investment Function.
(f) Consumption Function depends on :- (i) Size of Income, (ii) Propensity to Consume. Keynes assumed consumption piece of work to hold upwards stable inwards 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 past times :- (i) Prospective Yield, (ii) Supply toll of Capital Assets. Keynes considered MEC equally a highly fluctuating phenomenon because it depends on occupation concern psychology.
(i) Rate of Interest (Ri) is determined past times Supply of Money in addition to Demand for Money (Liquidity Preference). Supply of coin is regulated past times monetary authorities. Liquidity preference is determined past times 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 principal determinant of the degree of employment. The greater the departure betwixt MEC in addition to Ri the higher the inducement to invest in addition to vive-versa. Since Rate of Interest (Ri) is stable inwards the curt run, MEC, which is unstable, is the principal determinant of Investment Function.
(k) The theory concludes that to heighten employment, effective need should hold upwards raised. So, Investment Expenditure must hold upwards raised past times filling the gap betwixt an increase inwards investment in addition to consumption. Lack of Effective Demand leads to unemployment.
