Keynes was a 20th century British economist whose ideas revolutionized economic thinking. He argued that free markets do not automatically provide full employment and that aggregate demand determines economic activity. Keynes advocated fiscal and monetary policies like government spending to mitigate recessions and depressions. His ideas were widely adopted and formed the basis of postwar economic policies that achieved strong growth and employment.

3.  Keynes was a British
economist whose ideas have
affected the theory and
practice of modern
macroeconomics, and
informed the economic
policies of governments. He
built on and greatly refined
earlier work on the causes of
business cycles, and is widely
considered to be one of the
founders of modern
macroeconomics and the
most influential economist of
the 20th century.

4.  In the 1930s, Keynes spearheaded a revolution in
economic thinking, overturning the older ideas of
neoclassical economics that held that free markets
would, in the short to medium term, automatically
provide full employment, as long as workers were
flexible in their wage demands. Keynes instead
argued that aggregate demand determined the
overall level of economic activity, and that
inadequate aggregate demand could lead to
prolonged periods of high unemployment. He
advocated the use of fiscal and monetary measures
to mitigate the adverse effects of economic
recessions and depressions. Following the outbreak of
the Second World War, Keynes's ideas concerning
economic policy were adopted by leading Western
economies. In 1942, Keynes was awarded a
hereditary peerage as Baron Keynes of Tilton in the
County of Sussex. During the 1950s and 1960s, the
success of Keynesian economics resulted in almost all
capitalist governments adopting its policy
recommendations.

5.  In 1999, Time magazine
included Keynes in their list
of the 100 most important
and influential people of
the 20th century,
commenting that: "His
radical idea that
governments should spend
money they don't have
may have saved
capitalism."In addition to
being an economist,
Keynes was also a civil
servant, a director of the
British Eugenics Society, a
director of the Bank of
England, a patron of the
arts and an art collector, a
part of the Bloomsbury
Group of intellectuals, an
advisor to several
charitable trusts, a writer, a
philosopher, a private
investor, and a farmer.

6.  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 or output, which is the level of real GDP that
is obtained when the economy's resources are fully
employed.
 According to Say's Law, when an economy produces a
certain level of real GDP, it also generates the income
needed to purchase that level of real GDP. In other words,
the economy is always capable of demanding all of the
output that its workers and firms choose to produce. Hence,
the economy is always capable of achieving the natural
level of real GDP.

7.  Consider what happens when the funds from aggregate
saving exceed the needs of all borrowers in the economy. In
this situation, real GDP will fall below its natural level because
investment expenditures will be less than the level of
aggregate saving.
 Aggregate saving, represented by the curve S, is an upward-sloping
function of the interest rate; as the interest rate rises,
the economy tends to save more. Aggregate investment,
represented by the curve I, is a downward-sloping function of
the interest rate; as the interest rate rises, the cost of
borrowing increases and investment expenditures decline.
Initially, aggregate saving and investment are equivalent at
the interest rate, i. If aggregate saving were to increase,
causing the S curve to shift to the right to S′, then at the same
interest rate i, a gap emerges between investment and
savings. Aggregate investment will be lower than aggregate
saving, implying that equilibrium real GDP will be below its
natural level.

8.  Unemployment
 Says Law of Market
 Equality between Saving and Investment
 Money and Prices
 Demand for Money
 Role of State in Achieving High Level of Income
and Employment
 General versus Special Theory