The classical doctrine—that the economy is always at or near the natural level of real GDP (full employment)—is based on two firmly held beliefs:
The assumption of the full employment of labour and other productive resources
Belief that prices, wages, and interest rates are flexible.
Keynesian Theory
In Macroeconomics Income and Employment are interchangeable terms, since in the short-run National income depends on the total volume of employment or economic activity in the country. As income and employment are synonymous the employment theory is also called income theory.
It should be clear to readers that the classical economists did not formulate any specific theory of employment as such. They only laid down certain postulates which subsequently developed as a theory.
Liquidity Preference Theory suggests that investors demand higher interest rates or additional premiums for medium or long-term maturities and investments. Simply put, interest rates directly indicate the price of the money.
https://efinancemanagement.com/investment-decisions/liquidity-preference-theory
In Macroeconomics Income and Employment are interchangeable terms, since in the short-run National income depends on the total volume of employment or economic activity in the country. As income and employment are synonymous the employment theory is also called income theory.
It should be clear to readers that the classical economists did not formulate any specific theory of employment as such. They only laid down certain postulates which subsequently developed as a theory.
Liquidity Preference Theory suggests that investors demand higher interest rates or additional premiums for medium or long-term maturities and investments. Simply put, interest rates directly indicate the price of the money.
https://efinancemanagement.com/investment-decisions/liquidity-preference-theory
There are two major theories of employment (Classical and Keynesian Theories) in macroeconomics. This presentation seeks to provide an overview of the two major theories.
There are two major theories of employment (Classical and Keynesian Theories) in macroeconomics. This presentation seeks to provide an overview of the two major theories.
It includes:
CLASSICAL THEORY OF EMPLOYMENT,
SAY’S LAW OF MARKET,
Determination of Employment and Output in the Classical Model,
Keynesian Theory of Employment,
Principle of Effective Demand, and on many more topics...
The fundamental principle of the classical theory is that the economy is self‐regulating. Classical economists maintain that the economy is always capable of achieving the natural level of real GDP, which is the level of real GDP that is obtained when the economy's resources are fully employed.
National output or income was determined by real factors such as capital stock, state of technology, labour supply and in no way was affected by the general price level which was determined by the quantity of money. This classical doctrine is generally referred to as classical dichotomy.
While circumstances arise from time to time that cause the economy to fall below or to exceed the natural level of real GDP, self‐adjustment mechanisms exist within the market system that work to bring the economy back to the natural level of real GDP.
The classical doctrine—that the economy is always at or near the natural level of real GDP (full employment)—is based on two firmly held beliefs:
The assumption of the full employment of labour and other productive resources
Belief that prices, wages, and interest rates are flexible.
The general over production, and hence general unemployment, is impossible.
The normal situation is stable equilibrium at full employment.
The classical economist believe that the policy of laissez-faire guaranteed normal full employment. They had great faith in free and perfect competition, efficacy of the profit motive and price mechanism to remedy the temporary ills of the economic system and ensure full employment.
Prof. Pigou says, “With perfectly free competition, there will always be at work a strong tendency for wage rates to be so related to demand that everybody is employed.”
They treated money as a mere medium of exchange. (Transaction motive)
Property Rights IMPLICATIONS FOR CONSERVATION.pptxSnehal Athawale
Property rights in natural resource management are important because they provide incentives for people to manage natural resources responsibly. When people have an ownership stake in a resource, they are more likely to take steps to protect it, use it sustainably, and share it equitably. Property rights also create a system of accountability, ensuring that those who manage the resource are held responsible for their actions. Finally, property rights can provide a mechanism for resolving disputes over natural resources, promoting the peaceful resolution of conflicts. Property rights also promote economic efficiency by allowing private individuals and companies to reap the benefits of their investments in natural resources. This encourages innovation and technological advances that can improve the management of natural resources. Finally, property rights protect against externalities, such as pollution, by creating incentives to manage resources responsibly.
PERT (Programme Evaluation and Review Technique) was developed in 1956–58 by a research team to help in the planning and scheduling of the US Navy’s Polaris Nuclear Submarine Missile project involving thousands of activities. The objective of the team was to efficiently plan and develop the Polaris missile system.
This technique has proved to be useful for projects that have an element of uncertainty in the estimation of activity duration, as is the case with new types of projects which have never been taken up before.
Project management is important for several reasons:
1. Effective planning: Project management provides a structured approach to planning and executing projects. By defining clear objectives, timelines, and milestones, project managers can ensure that everyone on the team is working towards a common goal and that resources are allocated efficiently.
2. Cost control: Project management helps to control costs by identifying potential cost overruns early on and taking corrective action to prevent them. By keeping a close eye on project finances, project managers can ensure that the project stays within budget.
3. Risk management: Projects are inherently risky, and project management helps to identify, assess, and mitigate risks throughout the project lifecycle. By proactively managing risks, project managers can reduce the likelihood of negative outcomes and ensure that the project is completed successfully.
4. Improved communication: Good project management involves clear communication among team members, stakeholders, and sponsors. This helps to ensure that everyone understands their roles and responsibilities, and that there are no surprises or misunderstandings along the way.
5. Quality control: Project management also focuses on ensuring that the project delivers a high-quality output. By defining quality standards and conducting regular quality checks, project managers can ensure that the final product meets the requirements and expectations of stakeholders.
Property Rights IMPLICATIONS FOR CONSERVATION.pptxSnehal Athawale
Property rights in natural resource management are important because they provide incentives for people to manage natural resources responsibly. When people have an ownership stake in a resource, they are more likely to take steps to protect it, use it sustainably, and share it equitably. Property rights also create a system of accountability, ensuring that those who manage the resource are held responsible for their actions. Finally, property rights can provide a mechanism for resolving disputes over natural resources, promoting the peaceful resolution of conflicts. Property rights also promote economic efficiency by allowing private individuals and companies to reap the benefits of their investments in natural resources. This encourages innovation and technological advances that can improve the management of natural resources. Finally, property rights protect against externalities, such as pollution, by creating incentives to manage resources responsibly.
Supply Chain Management Changing business environment and Present need.pptxSnehal Athawale
Supply chain management (SCM) is the coordination of all activities involved in the planning, sourcing, production, and delivery of products or services to customers. The business environment is constantly changing, and these changes have a significant impact on SCM. Here are some of the ways in which the changing business environment is affecting SCM:
Globalization: The globalization of markets has created new opportunities for businesses to source and sell products across the world. However, it has also made SCM more complex as companies have to deal with multiple suppliers, varying regulations, and cultural differences.
Technology: The use of technology has revolutionized SCM, making it easier to manage processes, track products, and communicate with suppliers and customers. However, it has also created new challenges, such as cybersecurity risks and the need for skilled personnel.
Sustainability: The growing concern for the environment has made sustainability an important consideration in SCM. Companies need to find ways to reduce their carbon footprint, use renewable resources, and minimize waste.
Customer expectations: Customers are becoming more demanding, expecting products to be delivered faster, at lower costs, and with greater customization. This is putting pressure on SCM to be more efficient and flexible.
The present need for SCM is critical, as it enables businesses to compete in today's complex and dynamic environment. SCM helps companies to:
Optimize their operations: SCM helps businesses to streamline their processes, reduce costs, and improve efficiency.
Manage risk: SCM helps companies to identify and manage risks in their supply chain, such as supplier bankruptcy or natural disasters.
Enhance collaboration: SCM facilitates collaboration between different functions within a business and between suppliers and customers, leading to better communication and alignment.
Improve customer service: SCM helps businesses to meet customer demands by delivering products faster, with higher quality, and at lower costs.
Overall, SCM is essential for businesses to remain competitive and adapt to the changing business environment. It enables companies to respond to challenges and opportunities, while improving their efficiency and effectiveness.
Supply Chain Management Approaches Traditional vs Modern SCM.pptxSnehal Athawale
Supply chain management (SCM) refers to the management of the flow of goods and services from the point of origin to the point of consumption. Effective SCM is essential for companies to ensure timely delivery of goods, minimize inventory costs, and improve customer satisfaction. There are two main approaches to SCM: traditional and modern.
Traditional SCM focuses on optimizing the supply chain by minimizing costs and maximizing efficiency. The approach is based on a linear, sequential model that involves sourcing raw materials, transforming them into finished goods, and delivering them to customers. The traditional approach is often associated with a centralized decision-making process, with a strong emphasis on control and coordination. The focus is on reducing costs and improving efficiency through the use of lean production techniques and just-in-time inventory management.
In contrast, modern SCM emphasizes collaboration and flexibility, with a focus on meeting customer needs and achieving sustainability goals. The modern approach is based on a circular, networked model that involves multiple stakeholders working together to create value. The modern approach is often associated with decentralized decision-making processes, with a strong emphasis on collaboration and communication. The focus is on achieving sustainability and resilience through the use of digital technologies, data analytics, and supply chain visibility.
Some of the key differences between traditional and modern SCM include:
Focus: Traditional SCM focuses on reducing costs and improving efficiency, while modern SCM focuses on meeting customer needs and achieving sustainability goals.
Decision-making: Traditional SCM relies on centralized decision-making processes, while modern SCM emphasizes decentralized decision-making processes.
Collaboration: Traditional SCM is based on a linear model that emphasizes control and coordination, while modern SCM is based on a circular model that emphasizes collaboration and communication.
Technology: Modern SCM makes greater use of digital technologies, data analytics, and supply chain visibility to achieve sustainability and resilience.
Overall, while both traditional and modern SCM approaches have their strengths, the modern approach is seen as more effective in meeting the complex challenges of today's global supply chains, including sustainability, flexibility, and resilience.
Property Rights IMPLICATIONS FOR CONSERVATION.pptxSnehal Athawale
Property rights have significant implications for conservation efforts. When people have secure property rights over natural resources, they have an incentive to conserve and sustainably manage those resources over the long term. This can include investing in practices such as reforestation, sustainable agriculture, and fishing practices that conserve and protect natural habitats.
On the other hand, when property rights are insecure, conservation efforts can be more difficult to implement. For example, in areas where land tenure is unclear or contested, conservation organizations may have difficulty working with local communities to establish protected areas or conservation agreements. This can lead to conflict over land and resources, and ultimately hinder conservation efforts.
Secure property rights can also be important for promoting the participation of local communities in conservation efforts. When people have a stake in the management and protection of natural resources, they are more likely to participate in conservation initiatives and support conservation goals. In contrast, if people do not have secure property rights, they may be more likely to engage in unsustainable practices, such as illegal logging or poaching, as they do not have a long-term stake in the health of the resource.
Overall, the implications of property rights for conservation highlight the importance of ensuring that people have secure and well-defined property rights over natural resources, and that conservation efforts are designed to work within existing property rights frameworks. By doing so, it is possible to build a more sustainable and equitable future for both people and the environment.The Meghalaya Community Led Landscape Management Project is an initiative aimed at promoting sustainable management of natural resources in the state of Meghalaya, India. The project is funded by the Global Environment Facility (GEF) and implemented by the Government of Meghalaya, in partnership with the United Nations Development Programme (UNDP).
The main objective of the project is to support community-led approaches to natural resource management in Meghalaya, with a focus on improving livelihoods, reducing poverty, and conserving biodiversity. Specifically, the project aims to:
Improve the management of community forests, including strengthening community institutions and governance structures, promoting sustainable harvesting practices, and increasing community participation in decision-making processes.
Enhance the sustainable management of watersheds, through activities such as rainwater harvesting, soil and water conservation, and the promotion of sustainable agriculture practices.
Support the conservation of biodiversity, by promoting the establishment of protected areas and community-conserved areas, and supporting efforts to reduce threats to biodiversity such as habitat loss and fragmentation.
Increase awareness and knowledge among communities
Property rights play an important role in natural resource management. They define who has the right to access, use, and manage natural resources such as land, water, forests, fisheries, and minerals. Property rights can be held by individuals, communities, or the state.
Secure property rights provide incentives for individuals and communities to invest in the management of natural resources, leading to better outcomes for both people and the environment. When people have secure property rights, they are more likely to invest in sustainable management practices, conserve resources, and prevent degradation.
In contrast, insecure property rights can lead to overexploitation, degradation, and conflict over natural resources. For example, in areas where land tenure is unclear or disputed, people may engage in unsustainable practices such as overgrazing or deforestation, as they do not have the security of knowing that they will benefit from long-term investments in the land. Efforts to strengthen property rights in natural resource management include land titling and registration, community forestry management, and catch-share programs in fisheries. These approaches aim to provide greater clarity and security around property rights, leading to more sustainable and equitable outcomes for all stakeholders.
Objectives are statements which describe what the learner is expected to achieve as a result of instruction.
A course objective specifies a behavior, skill, or action that a learner can demonstrate if they have achieved mastery of the objective.
Objectives need to be written in such a way that they are measurable by some sort of assessment.
Course objectives form the foundation of the class.
Neo classical general equilibrium theory which is based on Walrasian theory of general equilibrium 2*2*2 model and Marshallian graphical representation
Even tho Pi network is not listed on any exchange yet.
Buying/Selling or investing in pi network coins is highly possible through the help of vendors. You can buy from vendors[ buy directly from the pi network miners and resell it]. I will leave the telegram contact of my personal vendor.
@Pi_vendor_247
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
What website can I sell pi coins securely.DOT TECH
Currently there are no website or exchange that allow buying or selling of pi coins..
But you can still easily sell pi coins, by reselling it to exchanges/crypto whales interested in holding thousands of pi coins before the mainnet launch.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and resell to these crypto whales and holders of pi..
This is because pi network is not doing any pre-sale. The only way exchanges can get pi is by buying from miners and pi merchants stands in between the miners and the exchanges.
How can I sell my pi coins?
Selling pi coins is really easy, but first you need to migrate to mainnet wallet before you can do that. I will leave the telegram contact of my personal pi merchant to trade with.
Tele-gram.
@Pi_vendor_247
what is the future of Pi Network currency.DOT TECH
The future of the Pi cryptocurrency is uncertain, and its success will depend on several factors. Pi is a relatively new cryptocurrency that aims to be user-friendly and accessible to a wide audience. Here are a few key considerations for its future:
Message: @Pi_vendor_247 on telegram if u want to sell PI COINS.
1. Mainnet Launch: As of my last knowledge update in January 2022, Pi was still in the testnet phase. Its success will depend on a successful transition to a mainnet, where actual transactions can take place.
2. User Adoption: Pi's success will be closely tied to user adoption. The more users who join the network and actively participate, the stronger the ecosystem can become.
3. Utility and Use Cases: For a cryptocurrency to thrive, it must offer utility and practical use cases. The Pi team has talked about various applications, including peer-to-peer transactions, smart contracts, and more. The development and implementation of these features will be essential.
4. Regulatory Environment: The regulatory environment for cryptocurrencies is evolving globally. How Pi navigates and complies with regulations in various jurisdictions will significantly impact its future.
5. Technology Development: The Pi network must continue to develop and improve its technology, security, and scalability to compete with established cryptocurrencies.
6. Community Engagement: The Pi community plays a critical role in its future. Engaged users can help build trust and grow the network.
7. Monetization and Sustainability: The Pi team's monetization strategy, such as fees, partnerships, or other revenue sources, will affect its long-term sustainability.
It's essential to approach Pi or any new cryptocurrency with caution and conduct due diligence. Cryptocurrency investments involve risks, and potential rewards can be uncertain. The success and future of Pi will depend on the collective efforts of its team, community, and the broader cryptocurrency market dynamics. It's advisable to stay updated on Pi's development and follow any updates from the official Pi Network website or announcements from the team.
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how to sell pi coins at high rate quickly.DOT TECH
Where can I sell my pi coins at a high rate.
Pi is not launched yet on any exchange. But one can easily sell his or her pi coins to investors who want to hold pi till mainnet launch.
This means crypto whales want to hold pi. And you can get a good rate for selling pi to them. I will leave the telegram contact of my personal pi vendor below.
A vendor is someone who buys from a miner and resell it to a holder or crypto whale.
Here is the telegram contact of my vendor:
@Pi_vendor_247
Introduction to Indian Financial System ()Avanish Goel
The financial system of a country is an important tool for economic development of the country, as it helps in creation of wealth by linking savings with investments.
It facilitates the flow of funds form the households (savers) to business firms (investors) to aid in wealth creation and development of both the parties
how to sell pi coins on Bitmart crypto exchangeDOT TECH
Yes. Pi network coins can be exchanged but not on bitmart exchange. Because pi network is still in the enclosed mainnet. The only way pioneers are able to trade pi coins is by reselling the pi coins to pi verified merchants.
A verified merchant is someone who buys pi network coins and resell it to exchanges looking forward to hold till mainnet launch.
I will leave the telegram contact of my personal pi merchant to trade with.
@Pi_vendor_247
Currently pi network is not tradable on binance or any other exchange because we are still in the enclosed mainnet.
Right now the only way to sell pi coins is by trading with a verified merchant.
What is a pi merchant?
A pi merchant is someone verified by pi network team and allowed to barter pi coins for goods and services.
Since pi network is not doing any pre-sale The only way exchanges like binance/huobi or crypto whales can get pi is by buying from miners. And a merchant stands in between the exchanges and the miners.
I will leave the telegram contact of my personal pi merchant. I and my friends has traded more than 6000pi coins successfully
Tele-gram
@Pi_vendor_247
Empowering the Unbanked: The Vital Role of NBFCs in Promoting Financial Inclu...Vighnesh Shashtri
In India, financial inclusion remains a critical challenge, with a significant portion of the population still unbanked. Non-Banking Financial Companies (NBFCs) have emerged as key players in bridging this gap by providing financial services to those often overlooked by traditional banking institutions. This article delves into how NBFCs are fostering financial inclusion and empowering the unbanked.
how to swap pi coins to foreign currency withdrawable.DOT TECH
As of my last update, Pi is still in the testing phase and is not tradable on any exchanges.
However, Pi Network has announced plans to launch its Testnet and Mainnet in the future, which may include listing Pi on exchanges.
The current method for selling pi coins involves exchanging them with a pi vendor who purchases pi coins for investment reasons.
If you want to sell your pi coins, reach out to a pi vendor and sell them to anyone looking to sell pi coins from any country around the globe.
Below is the contact information for my personal pi vendor.
Telegram: @Pi_vendor_247
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classical vs Keynesian theory.pptx
1. Central Agricultural University
1
College of Post Graduate Studies in Agriculyural Sciences, Umiam
Ri-Bhoi District- 793101
Meghalaya.
AG.ECON-502
Classical theory vs Keynesian theory
Presented By
Athawale Snehal Shivlal
School of Social Sciences
Ph.D (Agri. Economics) 1st Year
2. Points to be discussed…. 2
Classical Theory of Employment
Postulate of classical theory of
Employment
Modern View
Three ranges of Short-run aggregate
supply curve
Keynesian Economics
Keynesian theory of
employment
Wage rate Flexibility
Aggregate Demand-Aggregate
Supply Model (with Price Flexibility)
Aggregate Demand
Aggregate Supply
Interest rate flexibility Keynesian Versus Classical Theories of
Aggregate Demand
Keynes’s Monetary Theory : Money
affects real variables
Saving-Investment Relation
Are Savings automatically Invested ?
Classical Dichotomy and Neutrality of
Money
Unemployment and Full
Employment
3. Classical Theory of Employment
Central Principle: ‘The fundamental principle of the classical theory is that the economy is self‐regulating. Classical
economists maintain that the economy is always capable of achieving the natural level of real GDP, which is the level of real
GDP that is obtained when the economy's resources are fully employed.
National output or income was determined by real factors such as capital stock, state of technology, labour supply and in no
way was affected by the general price level which was determined by the quantity of money. This classical doctrine is
generally referred to as classical dichotomy.
•While circumstances arise from time to time that cause the economy to fall below or to exceed the natural level of real GDP,
self‐adjustment mechanisms exist within the market system that work to bring the economy back to the natural level of real
GDP.
• The classical doctrine—that the economy is always at or near the natural level of real GDP (full employment)—is based on
two firmly held beliefs:
1. The assumption of the full employment of labour and other productive resources
2. Belief that prices, wages, and interest rates are flexible.
• The general over production, and hence general unemployment, is impossible.
•The normal situation is stable equilibrium at full employment.
•The classical economist believe that the policy of laissez-faire guaranteed normal full employment. They had great
faith in free and perfect competition, efficacy of the profit motive and price mechanism to remedy the temporary ills
of the economic system and ensure full employment.
•Prof. Pigou says, “With perfectly free competition, there will always be at work a strong tendency for wage rates to be
so related to demand that everybody is employed.”
•They treated money as a mere medium of exchange. (Transaction motive)
3
4. Postulate of classical theory of Employment 4
Interest rate flexibility
Through the free market
interaction,
Demand for investment and
supply for saving will be same
Balance Budget
Government must maintain its
revenue and expenditures in
equilibrium.
Wage rate Flexibility
Unemployment is of a temporary
nature and this could be
corrected by wage cut policy.
5. Interest rate flexibility
The classical economist believed that through the free
market interaction. ‘II’(demand for investment)and ‘SS’
(supply of savings) will be equal.
‘II’ (Investment) demand is an inverse function to the rate
of interest ‘i’ whereas saving ‘SS’ is a direct function to the
rate of interest ‘i’ this is the belief of the classical economist
that, there is always fluctuations and through these, the
economy achieve equilibrium automatically.
The classical economist believe that all savings are invested
‘II’ is the investment demand as the rate of interest is high
investment is low, and as rate of interest is low investment is
high i ∝ 1/II and where as the savings is directly related to
interest rate. In other words i ∝ SS.
In the diagram ‘II’ and ‘SS’ interact at point ‘E’ which
determines the rate of interest ‘i’. If there is shift o the right
hand side of II (increase in investment)then the interest will
increase to O1 savings and investment will be shifted to a
new equilibrium ‘E1’ and there will be increase in ‘SS’ and I1I1
to OQ2.
5
6. Wage rate Flexibility
•The classical economist believed that “Unemployment
is of a temporary nature and this could be corrected by
wage cut policy.”
•Voluntary employment may exist but involuntary
employment could be corrected by wage cut policy,
which through self adjusting process in which economy
will lead to full employment.
•In free enterprise economy: if wages are allowed to find
there own level, then through perfect competition
involuntary unemployment will disappear.
•In the diagram ‘MRP’ Marginal revenue productivity is
given. At ‘OW’ wages the total employment is ‘ON’, if
the wages will reduce to ‘OW1’ then employment will
increase upto ‘ON1’.
6
7. Keynesian Economics 7
“ Raising Keynes:
An old economist finds new rock-
star status”
Central Principle: The
economy often operates at less
than full employment; market
system does not self adjust.
•Markets clear slowly, if at all. In
a depression and recession,
much unemployment is
involuntary.
•Economy often operates at less
than full employment since
markets don’t clear.
•Government intervention may be
desirable to stabilize the
business cycle. (Fiscal and
Monetary Policies)
•Equilibrium is there but no
reason for full employment.
•Money wage rates are sticky
(i.e. remain constant)
The term “Keynesian economics” was used to refer to the concept that optimal
economic performance could be achieved and economic slumps prevented by
influencing aggregate demand through activist stabilization and intervention
policies by the government.
8. Keynesian theory of employment 8
“ Raising Keynes:
An old economist finds new rock-
star status”
Principle of effective demand
Greater the aggregate effective demand, greater will
be the volume of employment, and vice versa.
Unemployment is the result of a deficiency of total
demand.
Effective demand represents the total money spent
on consumption and investment. The total national
expenditure is equal to the total national income which
is equal to the national output.
Deficiency of effective demand is due to the gap
between income and consumption.
The gap must be filled up by increasing investment
and hence effective demand, in order to maintain
employment at a high level.
9. Aggregate Demand-Aggregate Supply Model
(with Price Flexibility) 9
“ Raising Keynes:
An old economist finds new rock-
star status”
Aggregate Demand
Aggregate demand is the total desired quantity of
goods and services that are bought by consumer
households, private investors, government and
foreigners at each possible price level, other things being
held constant.
Thus aggregate demand is not any quantity demanded
at a particular price level but is a whole schedule of total
output demanded at various price levels and is
represented by a curve.
The aggregate demand has four components:
1)Consumption demand
2)private investment demand
3)Government purchases of goods and services
4) net exports.
Thus, aggregate demand curve depicts the total output
of goods and services which households, firms, and
Government are willing to buy at each possible price
level.
Aggregate Demand Curve with Varying Price Level
Factors responsible for AD curve slope downward
are-
1) Real Balance Effect
2) Rate of interest effect
3) Foreign Trade effect
10. 10
“ Raising Keynes:
An old economist finds new rock-
star status”
Fig. Aggregate Supply Curve : Classical View Fig. Keynes’s Aggregate Supply Curve
In the classical theory, the aggregate supply curve
of output is perfectly inelastic (i.e. a vertical straight
line).
They assumed that full employment of resources
in the economy. According to them, if at any time
there is deviation from this full-employment level,
the wages, interest and prices quickly and
automatically adjust or change to restore
equilibrium at the full employment level.
Aggregate Supply
Aggregate supply curve shows the various amounts of aggregate output which the producers in
the economy are willing to produce and sell in the market at various price levels.
Shows the relationship between price level and the
aggregate production (supply) during the period of
depression and involuntary unemployment where it will be
seen that aggregate supply is a horizontal straight line (i.e.
perfectly elastic) up to the level of full employment.
Since output of goods and services cannot be increased
beyond the full-employment level, Keynes’s aggregate
supply curve becomes vertical at aggregate output level
YF which represents full-employment level of output.
11. Modern View
Three ranges of Short-run aggregate supply curve
11
“ Raising Keynes:
An old economist finds new rock-
star status”
At times of depression or severe recession, the more can be
produced without much rise in marginal cost of production and
therefore the aggregate supply curve is nearly flat rather than
perfectly horizontal. This first range is therefore called nearly
flat range.
With the given stock of capital (i.e. plant and equipment)
when output is expanded beyond this range the diminishing
returns and rising marginal costs occur which ultimately cause
the aggregate supply curve to slope upward gently. Thus there
is a part of gently rising short-run aggregate supply curve which
represents intermediate range of short run aggregate supply
curve..
As the firms in the economy approach near their capacity
output their marginal costs rise sharply which cause sharply
rising aggregate supply curve. Beyond the level of capacity-
output, that is, when the given resources of the economy are
fully employed, short-run aggregate supply curve (SAS)
becomes a highly steep curve. Thus, aggregate demand curve
depicts the total output of goods and services which
households, firms, and Government are willing to buy at each
possible price level.
Fig. Short-run Aggregate Supply Curve with Three Ranges
12. 12
Fig. Classical Aggregate Supply Curve and Price Output Determination
•National output does not change in response to changes
in aggregate demand or the price level.
•Since classical aggregate supply curve is vertical, output
and employment in this theory is completely supply-
determined and the level of aggregate demand does not
play any role in determining national output and
employment.
Keynesian Versus Classical Theories of Aggregate Demand
Fig. Keynes’s View of Aggregate Demand
•Keynesian view the level of aggregate demand is an
important factor determining the level of output and
employment, if the economy is working at less than full
employment level.
•He lays stress on the stickiness of money wages.
•At the full-employment, increase in aggregate demand
will cause rise in price level with national output
remaining unchanged.
13. Saving-Investment Relation
Are Savings automatically Invested ?
13
“ Raising Keynes:
An old economist finds new rock-
star status”
Classical view : Always a full-employment equilibrium
1) Based on Say’s law according to which every
supply creates its own demand.
2) Self-employed individual producers.
3) Financial markets had not yet developed.
4) Every act of saving also constituted the act of
investment.
5) Changes in interest rate provided a mechanism
which ensured equality of saving and investment.
Keynesian view: Classical economist failed to take account of
the changes in income that come about from any change in
saving or investment. And the classics failed to realise that
what people intend to save .
From fig 1 fall in investment would lead to the decline in level
of income.
From fig 2 increase in saving implies decline in consumption
demand. Decline in consumption expenditure would also lead
to the decrease in income.
Fig.1
Fig.2
14. Classical Dichotomy and Neutrality of Money
Economic variables are classified into-
1) Real variable: A real variable measured in terms of goods or services. These real variables,
according to the classical theory, depend on such factors as labour supply, capital stock,
technology etc. and further that money plays no role in determining output, employment
and real wages
2) Nominal variable : whereas a nominal variable is measured in monetary units such as
rupees or US dollars.
classical economists thought national output or income was determined by real factors such as
capital stock, state of technology, labour supply and in no way was affected by the general
price level which was determined by the quantity of money. This classical doctrine is
generally referred to as classical dichotomy.
In Keynes’s theory, money supply determines rate of interest which influences investment
which, in turn, plays an important role in determining output and employment in the
economy.
14
15. Classical Dichotomy and Neutrality of Money
15
Graphically illustrate classical dichotomy
Panel (a) determination of price
level through classical vertical
aggregate supply curve AS and
downward-sloping aggregate
demand curve AD is shown. With
money supply equal to M0,
aggregate demand curve is AD0
which intersects aggregate supply
curve AS at point E0 and determine
price level P0.
Panel (b) shows labour market equilibrium which
determines real wage rate equal to W/ P0and
labour employment equal to ONF. From panel (c) it
will be observed that with ONF amount of labour
employed, full-employment level of output YF is
determined.
Suppose that money supply is reduced to M1 (M1 <
M0) resulting in the fall in aggregate demand curve
to AD1 which causes price level to fall to P1 while
real national output remains unchanged at YF. Now,
with the money wage equal to W, the fall in price
level (P1 < P0) will bring about rise in real wage rate
to W/P1 . But, with this higher real wage rate labour
market will be thrown into disequilibrium with
emergence of excess supply of labour (see panel
(b)). According to classical theory, to restore labour-
market equilibrium money wage rate will quickly fall
to W1 so that real wage returns to the original level
W/P0.
In labour market equilibrium, labour employment
remains at full-employment level ONF. In panel (c),
with ONF amount of labour employed, national
output remains at YF though the quantity of money
has been reduced from M0 to M1
As determination of real variables is
concerned, money is said to be neutral. Suppl
of money determines only nominal variables
16. Keynes’s Monetary Theory : Money affects real variables 16
money is non-neutral
Keynes brought about integration of money market and real goods
market.
He showed that rate of interest was determined by demand for
money and supply of money.(increase in the supply of money will
lower the rate of interest)
in panel (a) money market equilibrium is shown. Given money
supply equal to M1, money supply curve MS1 intersects money
demand curve Md at rate of interest r1. It will be seen from panel
(b) that at rate of interest r1, investment is I1. Then, in panel (c)
with the consumption function curve C and investment equal to I1,
aggregate demand curve is C + I1 which intersects the income line
OZ at point E and determines level of real national income equal to
Y1.
Suppose that there is increase in money supply from M1 to M2
which causes shifts in money supply curve from MS1 to MS2.
As a result in panel (a), rate of interest falls from r1 to r2, and
as a result of fall in interest rates in panel (b) investment
increases from I1 to I2. With this increase in investment (DI),
aggregate demand curve shifts above to the position C + I2 in
panel (c). With this increase in aggregate demand, level of real
national income increases from Y1 to Y2. Corresponding to this
increase in real national income the level of labour
employment will also rise.
Keynes succeeded in integrating money market with goods market
and with this he showed that money supply plays an important
role in determining real variables such as real investment.
17. Unemployment and Full Employment
Meaning of Unemployment: Unemployment is defined as a state of affairs when in a country
there are a large number of able-bodied persons of working age who are willing to work but
cannot find work at the current wage levels. People who are either unfit for work for physical
or mental reasons, or don’t want to work, e.g., sadhus, idle rich etc. are excluded from the
category of the unemployed.
Everyman’s Dictionary of Economics defines unemployment as “involuntary idleness of a
person willing to work at the prevailing rate of pay but unable to find it.”
Mere engagement in some productive occupation does not necessarily mean absence of
unemployment. People, who are only partially employed or are engaged in inferior jobs,
though they can do better jobs, are not adequately employed. It is called a state of
underemployment which is equally bad for the prosperity of a country.
17
18. 18
There are three main types of unemployment:
01 02 03
Frictional Unemployment
1. Lack of adjustment
between demand for
and supply of labour.
2. Lack of necessary skills
3. Labour immobility
4. Breakdowns of
machinery
5. Shortages of raw
materials,
6. Period between losing
one job and finding
another
Structural Unemployment
1. Economic changes are
massive, extensive, deep-
seated, amounting to
transformation of an
economic structure.
2. Result of mismatch
between demand for and
supply of labour.
3. Unemployed workers lack
skills.
4. Also known as long term or
Marxian unemployment
Cyclical Unemployment
1. Deficiency of effective
demand.
2. Also called cyclical
‘Keynesian
unemployment’
3. Income and output fall
4. Reduction in extent of
utilization of factors of
production.
5. Increases during periods
of recession or
depression.
19. 19
Other types of unemployment:
04 02 03
Seasonal Unemployment
1. Seasonal fluctuations in
demand.
2. Season bound
production activities.
3. Unemployment during
Slack season
4. Eg. Ice-cream sellers
remain unemployed
during winter.
Technological Unemployment
1. Technological change tends
to increase output per
man-hour which has the
effect of raising the
potential total output in
the economy.
2. Modern production
process displacing existing
workers.
3. Eg. Mechanization
displaces labour, resulting
unemployment.
Disguised Unemployment
1. People are prepared to
work but they are unable
to find work throughout
the year due to the lack
of complementary
factors.
2. A person is considered to
be underemployed if he is
forced by unemployment
to take a job that he
thinks is not adequate for
his purpose.
20. MEASURES TO ACHIEVE AND MAINTAIN FULL EMPLOYMENT
Fiscal Policy
Public finance,
expenditure, taxation
and debt
Monetary Policy
Credit control,
investment.
Income Policy
Limiting wages and
prices.
Encourage self-
employment
By providing raw
materials and technical
training.
Price Policy
Determining the
prices of goods and
services
International
measures
Loans from IMF and
World Bank
21. Full Employment
Meaning of full employment: Full employment may be defined as the situation wherein all
those who are willing and able to work at prevailing wage rates are in fact employed for the
work in which they are trained.
Full employment does not mean that every one is employed. Some people like children, old
men and physically or mentally handicapped people are not able to work, these people are not
included in the labour force of the country. Full employment will exist in spite of their not
working.
Some people called ‘idle rich’ though able to work are not willing to work because they get
enough unearned incomes to live. These people are also not included in the labour force of
the country.
Full employment is said to exist in the economy even if there is prevailing some amount of
frictional and structural unemployment in the economy. If the number of unemployed is
greater than frictional and structural unemployment, only then we shall say that full
employment does not prevail. (Lord Beveridge estimated frictional unemployment of 3% in a
full employment situation for England).
Keynesian full employment is, by definition, the maximum level of employment that private
enterprise countries can attain without experiencing strong inflationary pressure.
.
21
At the time of great depression (1929-1933) though the rate of interest had actually fallen to a very low level, even then adequate investment was not forthcoming to achieve full-employment equilibrium. This shows how wrong was the classical view that changes in rate of interest would automatically bring about equilibrium between saving and investment at full employment level.