keynes.docx - Parteek Sachdeva 190201067 Limitation of Keynes theory The article helps us to understand where we can apply Keynesian theory of

keynes.docx - Parteek Sachdeva 190201067 Limitation of...

This preview shows page 1 - 2 out of 2 pages.

Parteek Sachdeva 190201067 Limitation of Keynes theory The article helps us to understand where we can apply Keynesian theory of macroeconomics and it cannot applied to underdeveloped country as the relevant assumptions do not hold, which will be discussed later. The General theory of employment, interest and wages, which was used by Keynes has very confined scope, and cannot be applied everywhere. Keynes theory can be applied to only economies that have saturated the use of capital and other resources and have reach the level of full employment. Whereas economies which are still in stage of advancement and development have a lot of capital and resources to reach to full employment level and we can not apply Keynes theory on these type of economies. We need to check whether the implied assumptions for Keynes theory holds or not for the unsaturated economies. Main assumption of Keynes theory was that there is full employment which means that all the resources are used at optimum level. Full employment is a situation in which everyone who wants a job can have work hours they need on fair wages. In simpler words it means, marginal utility of labour gets equal wage that is equal to utility derived from the work that the person do . In involuntary employment utility of wage exceeds the marginal disutility of labour.

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture