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Keynes Theory of Income and Employment

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Keynes Theory of Income and Employment
KEYNES THEORY OF INCOME AND EMPLOYMENT

CONTENT OF REPORT

• CLASSICAL THEORY OF EMPLOYMENT

• KEYNES CRITICISM OF CLASSICAL THEORY OF EMPLOYMENT

• KEYNES THEORY OF INCOME AND EMPLOYMENT

• SIGNIFICANCE OF KEYNES THEORY

• Criticism on Keynes’ Theory

KEYNES THEORY OF INCOME AND EMPLOYMENT

The theories of employment are broadly classified into two: (a) Classical theory of employment (b) Keynesian theory of employment.
The classical theory assumed the prevalence of full employment. The ‘Great Depression’ of 1929 to 1934, engulfing the entire world in widespread unemployment, low output and low national income, for about five years, upset the classical theorists. This gives rise to Keynesian theory of employment.

Classical Theory of Employment:-
The term ‘classical economists’ was firstly used by Karl Marx to describe economic thought of Ricardo and his predecessors including Adam Smith. However, by ‘classical economists’, Keynes meant the followers of David Ricardo including John Stuart Mill, Alfred Marshal and Pigou. According to Keynes, the term ‘classical economics’ refers to the traditional or orthodox principles of economics, which had come to be accepted, by and large, by the well known economists by then. Being the follower of Marshal, Keynes had himself accepted and taught these classical principles. But he repudiated the doctrine of laissez-faire. The two broad features of classical theory of employment were: (a) The assumption of full employment of labour and other productive resources, and (b) The flexibility of prices and wages to bring about the full employment
(a) Full employment:-
According to classical economists, the labour and the other resources are always fully employed. Moreover, the general over-production and general unemployment are assumed to be impossible. If there is any unemployment in the country, it is assumed to be temporary or abnormal. According to
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