Rakas21
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So i'm in third year now but was just going through my first year notes to see if there's anything i can add to essays ect.. but my notes on a few things tended to be unstructured and i paid less attention than i should.

So basically i just want confirmation that what i have down is right and feel free to comment on any of my interpretations. Some of this may seem basic but it's worth getting a fact check anyway.

..

Keynes believed that fiscal or monetary intervention in markets was superior to the invisible hand.

Hydraulic Keynesianism is the belief that stable relationships exist between variables at the aggregate level and that this is justification for fiscal and monetary intervention.

The method of analysis regarding neo-classical theory is to analyse markets on the basis of individual economic agents choice.

The Keynesian criticism of choice theory is that the basis of choice lies in vague, uncertain and shifting expectations of future events and circumstances.

*I interpreted this to mean that dynamic modelling is needed for accurate assessment of choice theory. Such dynamic models did not exist at the time.

Keynes justifies market intervention only to the point that full employment is reached.

*Keynes assertion in final chapter of general theory validates neo-classical choice theory if central intervention succeeds in establishing aggregate demand corresponding to full employment. Other economists have subsumed Keynesian theory into their own economic ideologies contrary to the interpretation of Keynes himself.

Keynesian theory is based on central planning from a de-centralised state.

Keynesian economics based around expenditure, income and output while neo-classical economics is based around quantity and price.

*I interpret that Keynesian theory accepts that price signals do provide incentives (wage and interest rates) but contests that national input, expenditure and output is more important.

The general theory states that employment is a better indicator of demand than real wages except in cases where full employment exists.

Hydraulic extreme - Unlimited money supply and zero interest rates.

*I believe that this would simply be inflationary and produce a highly leveraged economy.

Hick's believes that central planning was most effective when spare capacity exists.

The dual decision hypothesis postulates that consumer spending is dependent on current income.

*I believe this does not take into account credit availability.

Investment is determined by the marginal efficiency of capital in conjunction with the rate of interest. The rate of interest is determined by liquidity preference and the quantity of money.

*I believe the general theory does not explain why wages are falling at a time of increasing employment.

Keynes argued for reduced real wages during the 20's/30's. He believed however that workers would resist and so this solution could only be practiced in a totalitarian state.

Real wages equal marginal product of labour is a classical acceptance.

Employment is a function of the propensity to consume and rate of investment in relation to real wages.

*Why did employment increase during 2011/2012 when consumption and investment were both weak or negative. Or was this due to falling real wages.
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29Bilal96
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