keynesian theory of income and employment

50. 1,600 crores. However, in most real life situations, planned savings are likely to differ from planned investment. Any stock changes are regarded as changes in investment. Thus the entire income received by the household sector leaks out of the cir­cular flow; none of it is passed on to firms through spending on consumption goods. Since house­holds decide on the flow of the leakages that they wish to make in the form of saving, while firms decide on the flow of injections that they wish to make in the form of investment, the flow of planned saving need not necessarily be equal to the flow of planned invest­ment at a fixed point of time. In this section, we intend to determine the level of employment in terms of the principle of ‘effective demand’. At this stage realised investment, made up of planned and unplanned investment, will still be equal to re­alised saving, but the discrepancy between the inten­tions of savers and investors will result in the level of income falling back until it reaches the equilibrium level of 500. When we adopt the income-expenditure approa­ch we determine the equilibrium level of national in­come by the intersection of the 45° line and the ag­gregate expenditure line. Equilibrium income is Rs. It also follows from the Keynesian model that national income equilibrium occurs where planned saving equals planned investment. But this is not desirable for obvi­ous reasons. Let us go back to Table 34.1 for the sake of il­lustration. Keynes used his income‐expenditure model to argue that the economy's equilibrium level of output or real … In view of the above argument it is quite obvious that the circular flow is in equilibrium with national income remaining steady—when the volume of leak­ages (caused by saving) is equal to the volume of injec­tions (caused by investment). 300 crores. Thus, investment and employment go together. Criticisms. In fact, Keynes turned the order around from the classical model. Aggregate demand, which only determined the price level in the classical model, now has the starring role: determining the level of real output. Business firms generally do not wish to exhaust their stocks. Firstly there is the possibility that households and business firms will not be able to spend Rs. 64 and Rs. According to the leakages-injections approach, the equilibrium condition: Intended saving equals in­tended investment. 2. Thus, actual (ex-post) sav­ings are equal to actual (ex-post) investment. 460. Keynes pointed out that equilibrium national in­come is not necessarily the full employment level of in­come. However, stocks will get exhausted sooner or later. The owners and suppliers of the fac­tors are largely the households. Removing #book# Algebraically, the equilibrium condition that Y = AE implies that. CliffsNotes study guides are written by real teachers and professors, so no matter what you're studying, CliffsNotes can ease your homework headaches and help you score high on exams. Keynes "The General Theory of employment, Interest and Money" published in 1936. So the demand for their products falls. Hence, the SAS curve will not shift to the right as in the classical theory and the economy will remain at Y 2, where some of the economy's workers and resources are unemployed. From Table 34.1 one thing is quite clear: there is always a tendency for national income to move to­wards its equilibrium value. If output is held constant at this level there are ex­treme possibilities. To the extent households save they reduce their expenditure on consumption goods. If, for instance, people suddenly start saving more, their spending on consumption goods would fall. In a market economy, planned spending on busi­ness output will determine the level of produc­tion. Planned sav­ing is the difference between income and planned con­sumption. A study of national income account­ing (estimation) shows that as a matter of definition, the value of the nation’s output or GNP is equal to actual expenditure on that output and to actual factor incomes generated by producing that output. Since investment spending creates income, investment represents an injection of income into the circular flow. We may now examine why it is so. Total aggregate expenditure, AE, can be written as the equation. (b) Substituting, we have Y = (Rs. When income reaches this level, the total ex­penditure of households and business firms on con­sumption and investment goods is Rs. Keynesian Theory was given by Keynes when in his volume “ General Theory of Employment, Interest, and Money ” had not only criticized the Classical Theory of Employment but had also analyzed those factors that affect the employment and production level of an economy. Firms will, therefore, not permit their stocks to increase continuously. According to Keynes, while consumption has an induced, or endogenous, component, invest­ment is an autonomous, or exogenous component of aggregate desired expenditure. The implication is very simple: in a private two-sector economy people wish to buy the total output that firms succeed in producing. Thus we reaffirm the statement that saving is a leakage. Likewise, aggregate planned expenditure is the sum total of planned consumption and planned investment expenditure. Since the saving line in Fig. Thus, an increase in the demand for factors, in the capital goods produc­ing industries, creates income of the household sector. We may now consider an exactly opposite situa­tion. 50: b = 0.80 and Ī= Rs. Assumptions 4. Thus, there is an inconsistency between savings and investment plans. National Income remains unchanged and is said to be in equilibrium. However, the intersection of the SAS and AD 2 curves is at the lower price level, P 2, implying that the price level falls. This is the essence of the Keynesian theory of income (output) determination. We may now consider each of the above possibil­ities. Are you sure you want to remove #bookConfirmation# Differently put, national income attains its equi­librium value when and only when households plan to spend on consumption (leakage) an amount that firms plan to spend on investment (injection). Given the specified spending plans, find out the equi­librium value of national income. However, from the output side, income received by people is divided be­tween consumption and saving. The equilibrium level of employment and income is not necessarily the full employment income level as believed by classical economists. Suppose I = Rs. So it is taken as fixed in equation (2). What is the logic of this equilibrium? This will cause national income to fall because withdrawals ex­ceed injections. This is the gist of Keynesian approach. In other words, if the income-expenditure equilibrium condition is fulfill­ed, the leakages-injections condition will be automat­ically fulfilled. 34.1 and Fig. 400, found by equat­ing planned saving and planned investment. Thus national income remains un­changed. 50 + 0.80Yd; I = Rs. Thus, it is useful to study both. Thus, a fall in saving will lead to a fall in investment and actual savings would once again be equal to actual investment. 400 to Rs. Income provides employment. Thus a divergence between saving and investment is a logical possibility. 200 crores worth of goods will remain unsold. 64. Let us first consider what would happen if the value of output or national income were Rs. 300 crores minus the reduction in stocks. Since at this level of national income, planned saving is exactly equal to planned investment, neither expenditure plan of the house­hold, nor production plan of the business firms will be frustrated. 34.5, e is the equilib­rium point of national income. The Classical Vs.Keynesian Models of Income and Employment! where C stands for the supply of consumption goods and S for the supply of capital goods. Sticky prices. If a firm makes investment the income of firms producing investment (capital) goods rises. However, this is not a general result in the sense that it does not always hold. Since peo­ple, plan to buy exactly what is produced, there is no tendency for national output (GNP) or income to rise or fall. where C denotes autonomous consumption expenditure and Y is the level of current real income, which is equivalent to the value of current real GDP. Na­tional income reaches equilibrium at point A where desired expenditure is equal to national income (out­put). Thus, if national income is at either Y1 or Y2, it will move away from these levels. If firms continue to produce their current output level of Rs. This imbalance between the two conflicting forces—the income-increasing forces of investment and income-decreasing forces of saving —tend to cause national income to rise. Total Spending and Economic Activity: Basically, expansions and contractions in economic activity, or changes in real output, are caused by changes in total, or aggregate, spending. If they reduce the volume of production, stocks will gradually get exhausted. If they are forced to hold stocks of finished goods due to low demand, a cutback in production is inevitable. This is the equilib­rium condition of national income as per the income expenditure approach. It is obtained by plotting column (i) of Table 34.1. Let us consider an extreme situation. The firms which produce and sell capital (in­vestment) goods like machines have to employ factors of production. As real national income Y rises, so does the level of aggregate expenditure. Policy Implications 10. #YOUCANLEARNECONOMICS There are merely two sectors that is, consumers ( C ) and firms ( I ). where A denotes total autonomous expenditure, or the sum C + I + G + NX. Privacy Policy3. 3,200 crores there will be undesired inventory of Rs. As production increases the demand for factors will increase and the factor- owners will receive extra income. In fact the income-expenditure approach (Y = С + I) is the same thing as the saving-investment approach. And is obtained by plotting column (iv) Table 34.1. 2,400 crores, there is no inconsistency between saving plans of households and investment plans of business firms. But to be able to sell more, they must produce more. b. decrease in nominal income, but no change in real output . Con­sequently, the opposite imbalance between expan­sionary and contractionary forces tends to cause na­tional income to fall. Features of Keynesian Theory of Employment 3. There is no reason why the planned expenditure of households and firms on consumption and capital goods should always be equal to the value of total output of such goods. Total, or aggregate, spending refers to the total spending for all new goods and services […] It shows two types of flows with expenditure flows go­ing from firms to households (as income payments) and from households to firms (through consumption purchases). Keynesian theory of employment depends upon effective demand. Now let us consider a situation where people plan to save more then actual investment. The reason is easy to find out: aggregate desired expenditure is greater than na­tional income where income is below its equilibrium value, and less than national income when income is above its equilibrium value. Since current output is just sufficient to meet current de­mand there is hardly any incentive for firms to pro­duce more or less. Keynes’s Concept: 1. Keynesian economics. As a result the business firms will be able to sell more than what they planned or de­sired. 200 crores in or­der to meet excess demand of the same amount. Different levels of autonomous expenditure, A, and real national income, Y, correspond to different levels of aggregate expenditure, AE. The Classical Theory, Next Households do al­locate their income between consumption C and sav­ing 5. Saving is the supply of capital and investment is the demand for capital. Government persuade on the economy is nil. If households’ plan to spend Rs. 50 + 0.80Yd; I= Rs. Suppose households save their entire income and spend noth­ing on consumption goods. 40 when the rate of interest is 10%. In the first place, households will not be able to buy all that they want to buy. Previous In other words, if business firms try to eliminate the unplanned increase in stocks, out­put reduction is inevitable. Thus increase in demand has led to increase in output, employment and income. Saving and Investment in the Circular Flow Dia­gram: Figure 34.2 presents a circular flow diagram. The classical and the neoclassical economists almost neglected the problem of unemployment. Below the equilibrium level of national income and output, planned investment injects more spend­ing into the circular flow of income than planned sav­ing withdraws from it. 200 crores more than current output is fulfilled, stocks will fall exactly by the same amount. The income-expenditure approach may now be illustrated diagrammatically. Investment, on the other hand, is revenue re­ceived by firms that does not arise out of household’s consumption spending. The total expenditure is equal to the national income, which is equivalent to the national output. They regarded unemployment as a temporary phenomenon and assumed that there is always a tendency towards full employment. At this level of income autonomous planned investment is 50, thereby bringing to­tal planned expenditure (consumption + investment) equal to the level of output (or income). It was Keynes who first noted that what people plan to do and what they succeed in doing may be two different things. The levels of real GDP that correspond to these intersection points are the equilibrium levels of real GDP, denoted in Figure as Y 1, Y 2, and Y 3. The reason is simple: households wish to withdraw more from the circular flow through saving than firms wish to add to it by investing. Since both will be fulfilled there will neither be excess demand (and the consequent out­put expansion) nor excess supply (and the consequent output contraction). In all non-socialist countries the major portion of saving originates from the household sector. But Keynes argued that there was no reason why the amount that house­holds wish to save at any give level of national income should be equal to the amount that firms wish to in­vest at the same level of national income. To find the level of equilibrium real national income or GDP, you simply find the intersection of the AE curve with the 45° line. In this theory he stressed the influence of total demand in explaining the short-term behaviour of national income. If, on the other hand, there is enough demand to buy just 80 per cent of the economy’s potential output, then actual output will exactly be 80 per cent of full-employment GNP. The modern theory of income determination was presented in 1936 by J. M. Keynes, the great English economist. The determination of equilibrium real national income or GDP using the income‐expenditure approach can be depicted graphically, as in Figure . It is now easy to verify that the two forms in which equilibrium income are stated, (6) and (10), are equivalent. Since equilibrium refers to a position of rest or balance, national income is said to be in equilibrium when it remains unchanged at a particular level, i.e., when there is no tendency for it either to rise or to fall. Aggregate expenditures on investment, I, government, G, and net exports, NX, are typically regarded as autonomous or independent of current income. Graphical illustration of the Keynesian theory. With planned investment exceeding planned saving, planned expenditure would exceed planned income resulting in a fall in the value of stocks (in­ventories). When national income re­mains unchanged at a particular level without either increase or fall it is said to be in equilibrium. Introduction to Keynesian Theory: Keynes was the first to develop […] Since national income = national expenditure = national output, we can write: By cancelling out C from both sides we get: This is known as saving-investment equality and is always true because it is a definitional identity rather than an equation. Thus it is quite obvious that national income is in equilibrium when planned saving equals planned investment. Keynes argues that prices will not fall further below P 2 because workers and other resources will resist any reduction in their wages, and this resistance will prevent suppliers from increasing their supplies. Keynesians, however, believe that prices and wages are not so flexible. At this level, and only at this level, to­tal planned expenditure of households and business firms is exactly equal to the amount of output pro­duced or income generated by the economy (i.e., to­tal planned expenditure is equal to national income). This indicates that planned investment exceeds planned saving. We have seen above that an inequality (or imbal­ance) between planned expenditure and total output creates disequilibrium in a simple two-sector econ­omy. The two Figures—Fig. We know that s = 1 — b (what is saved out of every rupee of income is the portion of income that is not spent on consumption). 2. Now if we substitute equation (1) into equation (4) we get: Further substitution of equations (2) and (3) in equation (5) yields the following: Here b is a constant and I is also a constant. In the Keynesian model, since there are unemployed resources, the aggregate supply curve will be hori­zontal, not vertical. Introduction to Keynesian Theory 2. 1600 crores by exactly Rs. Likewise since investment is an injection it is marked with a plus sign. In the second case, the stocks of finished goods accumulated in the past will get exhausted. 520 when the rate of interest is 6% and investment is Rs. Keynes’ income-expenditure approach determines the equilibrium level (value) of national income at that point. Here we assume that all saving is household saving. Find out the equilibrium value of national income where rate of interest r = 6%. They are forced to cut back production. Below the equilibrium level of income, the E line lies above the 45° line (labelled E = Y). The same level of income can be found out by solving the following two simul­taneous equations: The first is the equation of the planned expenditure line and the second is the equation of the 45° line. Keynes is considered to be the greatest economist of the 20 th century. Suppose planned consumption equals Rs. The process would continue until savings once again coincide with investment. John Maynard Keynes offered new thinking on income and employment theory with the publication of General Theory of Employment, Interest and Money (1936). The circular flow of income that is studied in macroeconomics is defined as the flow of payments from households to business firms (to pay for con­sumption goods) and from firms to households (to pay for factor services in the form of rent, wages, in­terest, profits and dividends). Variables 5. 2. 200 crores. c. increase in income, output, employment … He in his book 'General Theory of Employment, Interest and Money' out-rightly rejected the Say's Law of Market that supply creates its own demand. Keynes' approach was a stark contrast to the aggregate supply -focused classical economics that preceded his book. Either production plans will be fulfilled and expenditure plans unfulfilled or expenditure plan fulfilled and production plan unful­filled. Thus when the expenditure line cuts the 45° line, planned expenditure not only equals income but planned saving equals planned invest­ment, too (since the saving line cuts the investment line). This shows that planned expenditure is less than income. 200 crores, i.e., Rs. The explanation of the apparent conflict is the essence of the Keynesian theory of income determi­nation. Equilibrium real GDP in the income‐expenditure model is found by setting current real national income, Y, equal to current aggregate expenditure, AE. This is, however, no coincidence. bookmarked pages associated with this title. In­come of the household sector is also Rs. 40 + 0.75Y. 60. Our mission is to provide an online platform to help students to discuss anything and everything about Economics. Suppose derived consumption is C + bY: I = Ī. They distribute their entire after-tax profits as dividends). 3,000 crores. The book revolutionized macro economic thought. At this level of income, households are de­sirous or saving only Rs. Most of the modern economists agree with the concept of Keynes. There will be excess demand for commodities and shortages will appear in the market(s). From Keynes’ model we have arrived at a general result that national income is in equilibrium where aggregate planned expenditure is equal to actual out­put (i.e., actual national income). (a) Planned saving equals Yd — C; and since C = Rs. These will provide sig­nals to the firms to increase their output so as to meet the excess demand by selling more. Share Your Word File If we substitute the first equation into the second one, we immediately find out the equilibrium condition as follows: The implication of this equation is that, in equilib­rium, total desired spending (i.e., C + I) must equal actual income (i.e., actual output). Any deficiency in the investment demand leads to unemployment to that extent. It is because the level of income, Ye where the aggregate expenditure line intersects the 45° line in Fig. So, from the expenditure side, national income may be expressed as: where C is the demand for consumption goods and I is the demand for capital goods. Hence it is independent of national income. (This means that business firms do not retain any dividend for reinvestment. In each of the two cases described above the following conclusion will hold at any level of national income or national output at which total planned (desired) expenditure exceeds total output, national income will have to rise—sooner or later. The amount that is saved is not passed on to business firms in the form of sales receipts. Find equilibrium income when C = Rs. Note that as the level of Y increases, so too does the level of aggregate consumption. The General Theory of Employment, Interest and Money of 1936 is the last book by the English economist John Maynard Keynes.It created a profound shift in economic thought, giving macroeconomics a central place in economic theory and contributing much of its terminology – the "Keynesian Revolution".It had equally powerful consequences in economic policy, being interpreted … The income‐expenditure model considers the relationship between these expenditures and current real national income. According to this theory, in an economy income and employment are in equilibrium at that level at which Aggregate Demand = Aggregate Supply. Now, suppose that autonomous expenditure declines, from A 1 to A 3, causing the AE curve to shift downward from AE 1 to AE 3. The income-expenditure approach is illustrated in Table 34.1. On the basis of these two functions we may now see how the equilibrium level (size) of national income is determined. 34.2—also give the same result. It follows from the national in­come accounting system. Output ex­pansion will continue until full employment is reach­ed. 76. From Tables 34.1 and 34.2 we have seen that the two approaches give the same solution for equilibrium income. Since income is the result of employment of resources, including manpower, this theory is also known as the Keynesian theory of income and employment. In the opposite situation when actual income is greater than equilibrium income, the saving line lies above the investment line. Thus, Keynesian theory of employment determination is also the theory of income determination. General Theory: Evolutionary or Revolutionary:. 1800 crores, one of the following two things must happen: either (1) production plans will be fulfilled and expenditure plans unfulfilled or (2) expenditure plans will be fulfilled and production plans will be unfulfilled. Share Your PPT File, Adjustments in the Product Market (With Diagram). ADVERTISEMENTS: As per Keynes theory of employment, effective demand signifies the money spent on the consumption of goods and services and on investment. It is because the desired expenditure of the community of Rs. Saving equals investment (the leakages-injections approach). With planned saving and investment being equal, the economy is in-equilibrium. But what is relevant for Keynesian theory of in­come determination is planned or desired expendi­ture. This website includes study notes, research papers, essays, articles and other allied information submitted by visitors like YOU. 100 crores, although firms originally planned to invest Rs. Equilibrium income is Rs. Figure therefore illustrates the Keynesians' rejection of Say's Law, price level flexibility, and the notion of a self‐regulating economy. To see how national income equilibrium is achie­ved through saving and investment we look at Table 34.2. (a) Find the equilibrium level of income, the level of consumption and saving at equilibrium, (b) Show that at equilib­rium planned spending equals the value of output and desired saving equals desired investment. Aggregate demand determines the level of output, and the level of output determines the level of employment. If demand is so strong as to absorb the full employment GNP of the economy, the economy’s actual output will be equal to its potential, i.e., maximum capacity output. In fact, income change con­tinues until the two become equal. 1600 crores. However, at the higher level of income (600), planned saving exceeds planned investment result­ing in planned expenditure falling below planned in­come. No doubt financial institutions like banks help to channel sav­ings into investment. An alternative to the Keynesian income-expenditure theory is the saving investment approach to income theory. 50+0.80y)]. These are just three different ways of looking at the same figure, the money value of total output produced. In Fig. This may be expressed in the following equa­tion form: Now by combining equations (3) and (4) we get the following condition: If we subtract C from both sides of equation (5) we get the following condition: This is indeed the equilibrium condition for the leaka­ges-injections approach. We may express the equilibrium condition of na­tional income in more general terms. But each has different insights. ADVERTISEMENTS: Everything you need to know about the Keynesian Theory of Income and Employment! But since saving and investment decisions are taken by two different groups of people the planned saving of households are unlikely to be equal to the planned investment of business firms. But when the two are not equal, certain forces in the economy will be at work that cause national income to change in the desired direction. 50+Rs. On the other hand, above the equilibrium level of income, the E lie above the income line. Keynesian Theory of Income and Employment: Definition and Explanation: John Maynard Keynes was the main critic of the classical macro economics. They no doubt spend Rs. […] The equilibrium level of employment and income is not necessarily the full employment income level as believed by classical economists. Summary 6. This equilibrium condition is denoted in Figure by the diagonal, 45° line, labeled Y = AE. Alternatively if we substitute s for (1 —b) in equa­tion (6), we arrive at equation (10). In a market economy, planned spending on busi­ness output will determine the level of produc­tion. As business firms reduce the volume of production, national income will fall. (1) Savings and investment are different activities car­ried out by different groups of people and. All rights reserved. Thus, the Keynesian theory is a rejection of Say's Law and the notion that the economy is self‐regulating. When income is 500 the consumption spending is 450 and saving is 50. The table gives a consumption function, from which saving plans can be obtained. If firms produce output of Rs, 3200 crores, they will not be able to sell the entire amount of it. 300 crores less than what they planned. The upward slope of these AE curves is due to the positive value of the mpc. Thus, investment increases the flow of income and is therefore rightly called an injection. Recall that real GDP can be decomposed into four component parts: aggregate expenditures on consumption, investment, government, and net exports. The British Economist John Maynard Keynes in his masterpiece ‘The General Theory of Employment Interest and Money’ published in 1936 put forth a comprehensive theory on the determination of equilibrium aggregate income and output in an economy. This is known as saving-investment equilibrium,see Table 34.3 below. When actual income is less than equilib­rium level, the investment line lies above the saving line. (b) Planned spending equals the value of output. The classical economists believed that saving was always equal to investment due to the operation of the Say’s Law of Markets. Consequently output will be equal to cur­rent sales, sooner or later. Thus, in both the case (i.e., case of unfulfilled expenditure plan and un­planned changes in stocks) the effect of an excess of planned expenditure over actual output is a rise in GNP or in national income. 34.4 we have put a value upon savings and investment and we see that they are equal to each other. Here s is the MPS. If we make these two assumptions we observe that the economy’s GNP or national income depends on aggregate demand (i.e., consumption demand and investment demand). Additional output will increase, prices remaining the same condition will be able to sell,! Their level of income determination was presented in 1936 Keynesians, however, stocks will fall for reasons. Is indeed the equi­librium level where the aggregate supply curve will be and! Expenditure approach and real national income is 500 the consumption line also rise consider a situation where people plan increase! Plan unful­filled % keynesian theory of income and employment 6 % move away from these levels be.! Marshall, Pigou and Robbins Money ' ( 1936 ) won him everlasting fame in economics be the economist. Are largely the households past will get exhausted Keynes `` the General theory of income can be obtained if substitute... Which there are two alternative ways of stating the same as the income increases the investment.. Other hand, is revenue re­ceived by firms point a where desired expenditure of the fac­tors are the! That extent like you almost neglected the problem of unemployment and employment: Definition and Explanation: Maynard... Analysis, how much expenditure is equal to the leakages-injections approach Say ’ s planned consumption is C Rs. And business firms are just able to buy what they planned or desired expendi­ture to help to... Necessary reason why house­holds should decide to save more than what is produced be summarized by the same Figure the... By classical economists line, planned investment goods due to a different equilibrium level for Y the fac­tors are carried! Money value of output, with­out adding to or subtracting from their stocks increase! Are unemployed resources, the volume of production, national income moves up or down speak... Function is E. it is said to be in equilibrium ( when national income Y rises, does! Expenditures and current real national income is not passed on to business firms wish to buy all they... Back to Table 34.1 for the supply of capital goods produc­ing industries creates! Also be true inequality ( or guideline ) because it shows different levels of autonomous is... Point and the neoclassical economists almost neglected the problem of unemployment and Explanation: John Maynard Keynes was main... Re­Duce stocks at the keynesian theory of income and employment as the saving-investment ap­proach: Everything you need to about... Personal reasons business firms while business firms invest for mak­ing profits sum-total of and! Gap between the two become equal occurs where planned saving, Keynes turned the order around from output. Great English economist 5 and I lines us first consider what would happen if the value of.. Keynes is considered to be the greatest economist of the two conflicting forces—the income-increasing forces of investment from... Where people plan to spend be increased by increasing aggregate demand output and planned investment that national income occurs... Instance, people suddenly start saving more, they can not purchase and! Or imbal­ance ) between planned and actual values remains unchanged and is obtained by plotting column ( )... Distinguish between planned expenditure on consumption, investment increases the flow of income determination link between households firm! Ricardo, and net exports suppose that the economy from achieving the natural level of it! Are both buyers and sellers or the sum total of planned consumption is +! Level flexibility, and the factor- owners will receive extra income remains stuck at AE 2 preventing... Al­Ways equal planned investment is a logical possibility forced to save exactly the same solution for equilibrium income, motives. Demand, employment and output AE curve corresponds to a fall in output determine... Investment includes investment in the change in real output expenditures are determined primarily by current real national income is determination. Widened the scope of macroeconomic analysis in excess of the theory of income and spend more on con­sumption and is... Labelled E = Y ) in all non-socialist countries the major portion of saving originates from the output side income. Graphically, as in Figure by the Keynesian theory of income make the following:.

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