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MEC and speculative motive

MEC and speculative motive - MEC and speculative motive i...

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MEC and speculative motive: i) MEC: Level of employment is governed by the size of the effective demand. There are two components of effective demand : C, the consumption expenditure and I, the private or induced investment expenditure Keynes has defined such investment activity in the form of any expenditure which has the capacity to promote employment opportunities . Therefore mere paper investment in the form of purchase of shares, bonds, securities etc. cannot qualify Keynes’ concept of investment. We have seen that the problem of unemployment arises because of frequent deficiencies in the consumption expenditure. Under the classical system such deficiency is taken care of by automatic and equivalent increases in the induced investment expenditure via appropriate adjustments in the rate of interest. But Keynes does not agree with this argument. He argues that the private investment decisions are not governed by deficiency in the consumption expenditure nor by rate of interest in isolation. It is dependent on the profit expectations of the producers
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