Keynes’s Theory of Employment: THE PRINCIPLE OF EFFECTIVE DEMAND: AGGREGATE DEMAND AND AGGREGATE SUPPLY
Keynes’s Theory of Employment: THE PRINCIPLE OF EFFECTIVE DEMAND: AGGREGATE DEMAND AND AGGREGATE SUPPLY Keynes was the first to develop a systematic theory of employment in his book, “General Theory of Employment. Interest and Money” published in 1936. The classical and the neoclassical economists in other words, aggregate supply price is the total cost of production incurred by employing a certain given number of labors. A lmost neglected the problem of unemployment. They regarded unemployment as a temporary phenomenon and assumed that there is always a tendency towards full employment. According to them, when there is unemployment in the economy, then certain economic forces in the free capital economy automatically operate in such a way that the condition of full employment is restored. Keynes challenged the validity of the classical theory of employment as during the period 1929- 33, there occurred great depression in the capitalist countries which caused huge unemploymen...