Among Keynes’ principal works was the issue of the determination of national income and employment in industrial economies. He also tirelessly had works aimed at identifying the various factors leading to economic fluctuations. Keynes made an incorporation of the theory of money into the theory of production. Through this, he was able to explain that the level of production could be affected by the money possessed by people. However, one of his works, The General Theory, represented a break with the mainstream of economic thought in a sharp manner. In this theory, there is little mention of the way labor and raw materials are made into finished goods as per the production theory (Harcourt 3). Additionally, in The General Theory, past investment is excluded from the aspects that had been known to be determinants of the volume of consumable output. Instead, concentration was laid on the current-period investment and other current expenditures, such as government spending, net purchases, and consumption, as the current output’s determinants. This theory also repudiated laissez-faire theories of economy by making an argument that an economic depression’s treatment was to substitute private investment with public investment and broaden the private investment. This theory defaulted economics mainstream by arguing that lower interest rates and easier credit are likely to stimulate investment (Harcourt 5).
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Notably, investment was a principal issue in Keynes’ system. This can be attributed first to his classics debate of the relationship that existed between uncertainty and investment. However, this connection changed to become the link between interest rates and investment. As per his argument in his theory, investment took a central position since he believed and had pointed out that the level of employment, psychology of the public, and employment were all dependent on the amount of investment. He went ahead to argue that despite the fact that other factors could affect output, only those, which impacted on the rate of investment, tended to be more unpredictable because they are the ones, which were affected by the views that people had about the future they know very little about. Investment, if viewed to be the marginal efficiency of capital schedule, is in fact the discounted value that capital asset is anticipated to engender over its life (Harcourt 8). To Keynes, a breakdown in anticipations was more likely to result in a fall in the investment, which through the multiplier would increase the initial uproar to cut down on output and, as a result, employment. It is, therefore, evident that Keynes’ system was traditionally dynamically concerning time, and that in the event that investment proved to be volatile as a result of uncertainty, the levels of both, employment and output would be hard to maintain (Harcourt 11).
It is worth noting that Keynesian economics have been foundational governments’ heightened interventions in their respective economies. It is due to the Keynesian economics, as suggested by J.M. Keynes, that both, taxation and government spending are utilized in stimulating the economy. In his statements, Keynes argued that in the event that the public sector was not willing to spend so as to lift demand, the government was the immediate alternative to do so by means of running a budget deficit. On the other hand, if it happened that the economic times were considerably favorable and that the private sector was on the spending mood, then the government was in a position to make a trimming of its spending and instead made a payment of its debts that it had accumulated in the slump period (Harcourt 13). This idea was aimed at balancing the budget in the middle-term so as to manage demand levels.
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