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Unformatted text preview: employment condition? Keynes has suggested that public authority should undertake public expenditure or an investment program (G) to correct the level of effective demand and to restore the level of employment. Since public investment activity is not motivated by the profit consideration, it is called autonomous investment . With the inclusion of G the income equation can be rewritten as follows: Y = C + I + G However, the size of the autonomous investment G need not be as large as the original gap between income and consumption (Y - C) expenditure. Even the small size of the public expenditure can significantly raise the level of effective demand. This is because of the presence of the multiplier. Keynes has made an important use of the multiplier operation. Let’s illustrate a multiplier. Given the two equations of income and consumption function the multiplier is present implicitly. Y = C + I and C = by (on substitution), Y = by + I...
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This note was uploaded on 11/17/2011 for the course EC ec 201 taught by Professor - during the Fall '10 term at Montgomery.
- Fall '10