Briefly describe Keynes four key contributions to the school of economics.

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Introduction

The development of Keynesian economic ideas had a great deal to do with the great depression of 1930 which started in America. In fact these ideas were developed when Keynes tried to analyse the problem of capitalist economy.

Unemployment has become a very severe problem on the account of his re-occupation, the problem of depression. Keynes ideas have been dubbed as Depression economics.
He tried to unite the monetary theory with his general economic theory.

1. Views of Keynesian (interest, money and employment)

For the first time Keynes presented to the world a systematic theory of determiners of the general level of economic activity and it was destined to become the source and origin of contemporary trends in economic thinking. The theory of employment is contained in the book 'The general theory of Employment, Interest and Money' published in 1936.

John Keynes took and modified the concept of effective demand and defined it as aggregate income/proceeds when the entrepreneur receives plus the income the entrepreneur earned focus on production from the amount at current employment when they decide to give.

The volume of employment when the entrepreneur decides to give is formed in the degree when charges such as employment are said to be profitable. Profitability depends on Total demand in terms of money for goods and services.

This amount of ready money is nothing but the total money created within the economy. Therefore employment depends on the size of national income. Total expenditure must be equal to total income since what one spends another receives.

2. Total Expenditure

In analysing total expenditure, Keynes noted that people do not spend the whole of their income on current consumption. As income increases, the level of consumption increases but in less proportion to the increase in income. He also noted that propensity to consume is a function of income and that marginal propensity to consume shows an increase in income hence divided between current consumption and current savings.
In his fundamental psychological law stock theory, Keynes states, "As income increases, consumption increases but less proportionately." As income increases it is divided between consumption and savings.

3. Regarding investments

Keynes noted that investment depends on marginal efficiency of capital/profits/inducement to invest. The interest is determined by money supply and liquidity preference. The condition influencing the two factors determine employment level.

4. Regards on laissez-faire

Keynes assigns an active role to the state in economic affairs of the country. He advocates for state intervention arguing that Laissez-faire should be ended.
Keynes pointed out the need for putting to an end the policy of laissez-faire in his book 'The End of Laissez-faire'. He argued that the government should intervene actively in economic matters to promote full employment.

Dullayo answered the question on May 1, 2018 at 21:12

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Briefly describe Keynes four key contributions to the school of economics.

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