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Keynesian Revolution

Keynesian Revolution - law of marginal propensity to...

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Keynesian Revolution: It was in the year 1936 that Lord John Maynard Keynes’ General Theory of Employment , Income and Rate of Interest was first published. It is the first ever full account of macroeconomic activities. Keynes’ theory is an outstanding piece of analysis, which is considered a landmark in the history of economic science. It contains a variety of novel scientific ideas. It is a major breakthrough in the classical tradition and an entry into a modern Keynesian school of economics. His followers Harrod, Domar, Kaldor, Mrs. Robinson, Solow etc. have ever since widened the scope of macroeconomic analysis. After the publication of the General Theory both economic practice and policy making have changed fundamentally. It is not without reason that the theory has come to be known as ' Keynesian Revolution '. The revolutionary impact of the theory has been variously demonstrated. Keynes has introduced a variety of new tools of analysis. His equations of income and expenditure, consumption function,
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Unformatted text preview: law of marginal propensity to consume (MPC), multiplier operations, investment function and marginal efficiency of capital (MEC), identity between savings and investment , and his pure monetary liquidity preference theory of interest accompanied by speculative motive for demand for money are some of his new contributions. Keynes denied the classical belief that the free enterprise system is a self regulating one and asserted that such a system requires periodic intervention of the public authority to avoid fluctuations and instability in economic activities . Besides, Keynes replaced the classical partial equilibrium by a more general equilibrium to ensure the full employment level of output and employment. Keynes was building an entirely new structure of economic analysis to study and redress the problem of unemployment . It was therefore essential for him to bring out weaknesses and inadequacies of the classical approach to the problem of unemployment ....
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