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OfflineI_Fart_Blue
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John Maynard Keynes
    #1059562 - 11/17/02 05:17 AM (14 years, 6 months ago)

Here is a paper I've written for my macroeconomics class. I figured I'd post it in here and anybody who cares to crtique it, please feel free to do so. I haven't edited it or anything, so there may be a gramtical mistake here or there. It isn't too long, only four pages, which is what I am limited to. It isn't my best writing, but I think it shall suffice.

The principles developed by John Maynard Keynes, and those refined by his followers, were mainly formed to explain that which was unexplainable from the Neoclassical economic viewpoint. Keynes's influence was very prominent, influencing even the New Deal, which pulled the United States out of economic turmoil in the 1930's. His most significant piece of work, The General Theory of Employment Interest and Money was published in 1936, and is still influential nearly seventy years later.

Keynes often called the father of Macroeconomics was born to a very academic and intelligent family in Cambridge, England in 1883. He died sixty-three years later in 1946, passing before both of his parents. He was educated at Cambridge University, graduating in 1905. Keynes began teaching economics in 1910 at Cambridge. He published many works during his life, including a book on probability in 1921, however none was as influential as The General Theory of Employment Interest and Money.

One of Keynes's most significant contributions to the world of economics was his definemeny of effective demand (also know as aggregate demand, or AD). Demand (D) is calculated from two different types of goods according to Keynes, D1, the amount which the community is expected to spend on consumption, and D2 , the amount which it is expected to devote to new investment” or, D=D1+D2. Essentially aggregate demand is the total demand for goods which are consumed by the public sector, often refereed to as consumers goods and, investment capital. This is known as the I + C approach, or the investment expenditure approach. The determinate factors of consumer goods and goods which are used as capital are very different. Demand for consumer goods stems from income. Demand for investment capital relies on the anticipation of
profit. Therefor, if there is little or no expectation of income, consumers will be less likely to increase spending and entrepreneurs will be less likely to increase their capital expenditures, including human capital. Overall, this can and will affect what Keynes called the consumption function. The consumption function relates consumption expenditures to real disposable income. However, D1 does not increase proportionately to D according to Keynes, and this affects employment. "Employment cannot increase", argues Keynes, "unless at the same time D2 is increasing to fill the gap between Z[aggregate supply price] and D1" Keynes believed that employment is determined by the propensity to consume, and new investment.

Economic downturns according to Keynes, were not those of a long-term nature, but rather the result of short-term market difficulties, these difficulties mainly stemming from the lack of demand in the private sector. Keynesian theorists believe it is the responsibility of the Government to assure economic growth and development if the private sector should fail in it's ability to do so. By adapting a budget in which the Government would run a deficit, the Government would be able to increase spending, in effect, altering the factors influencing the LRAS, and the SRAS. This differs drastically from the Classical model in which tax breaks offered up by supply-side economics will only affect the SRAS. With the upturn in the market caused by said governmental spending, the government could
pay off debts.

Keynesian thought however is not without flaw. While curbing the magnitude of the negative effects of the business cycle is one of the more important predicaments facing Keynesian economists, the ability to do so effectively is somewhat determined by time, or more specifically, time lag. Time lag can be broken down into three categories, each of which affect the effectiveness of the fiscal policy implemented. The first of these lags is the time between a fiscal change is actually necessary, and when the Government recognizes the problem. The second of such lags, is the difference in time between the Government's realization of the problem, and the actual implementation of a chosen fiscal change. This poses one of the greatest hurdles, as often it is difficult for the members of Government to agree on the change in fiscal policy. The third time lag lies in between the time at which the Government implements the new policy, and the time it takes for the new fiscal policy to begin affecting the market. This poses several problems to the Government if the resolutions are not developed quickly, and often they are not. If the economic situation has worsened the effects of the policy will not be substantial to overcome the market downturns. If in fact, the market has corrected (by what means is purely inconsequential) and is experiencing inflation, said policy will only hurt the economy, increasing inflation. Therefor, implementing new fiscal policy is somewhat tricky, and often unpopular.

Keynes's theories were not met without controversy however, but Keynes realized this, in his preface to The General Theory of Employment Interest and Money when he says "I cannot achieve my object of persuading economist to re-examine critically certain of their basic assumptions except by a highly abstract argument and also by much controversy." His works were certainly met with much criticism, however neoclassical economists could not ignore Keynes's theories. His work sought to explain many principles that classical economists ignored. It was because of Keynes's arguing that the Ceteris Paribus assumption of the classical economists, that the neoclassical economists renamed their theory microeconomics. It was from this that Keynesian theory or macroeconomics was derived.

John Maynard Keynes's influence throughout the twentieth century was felt in capitalistic countries worldwide. Keynsian economic theory is one of great importance to many modern economists, and no survey of modern economic theory is complete without the works of John Maynard Keynes.


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"A study of the history of opinion is a necessary preliminary to the emancipation of the mind. I do not know which makes a man more conservative-to know nothing but the present, or nothing but the past." -John Maynard Keynes


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OfflineEllis Dee
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Re: John Maynard Keynes [Re: I_Fart_Blue]
    #1059601 - 11/17/02 05:46 AM (14 years, 6 months ago)

Quote:

Economic downturns according to Keynes, were not those of a long-term nature, but rather the result of short-term market difficulties, these difficulties mainly stemming from the lack of demand in the private sector.



While I'll not start a debate on the business cycle I'll point out what might be an extra word. I think the word those in the sentence '...those of a long term nature' might not be necessary. It just makes the sentence read a bit akwardly, at least to me.

Hope you get an A on your paper! :smile:


--------------------
"If the foundations be destroyed, what can the righteous do."-King Solomon

And there was war in heaven: Michael and his angels fought against the dragon; and the dragon fought and his angels,


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OfflineI_Fart_Blue
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Re: John Maynard Keynes [Re: Ellis Dee]
    #1059650 - 11/17/02 06:28 AM (14 years, 6 months ago)

I agree, thanks!


--------------------
"A study of the history of opinion is a necessary preliminary to the emancipation of the mind. I do not know which makes a man more conservative-to know nothing but the present, or nothing but the past." -John Maynard Keynes


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