This also reveals that to get a desired increase in employment and income of Y1YF, it is the multiplier effect of an increase in investment by I1 (=I2 in Panel C of Figure 1) which leads to an increase in employment and income by Y1YF through successive rounds of investment. However, by ‘classical economists’, Keynes meant the followers of David Ricardo including John Stuart Mill, Alfred Marshal and Pigou. The Keynesian Theory of Income, Output and Employment! This reduces the velocity of circulation of money. Therefore, output will change in the same proportion as the quantity of money, and there will be no change in prices. But when the rate of interest falls to R1, investment increases to OI2. The total money income (Y) is the value of goods and services produced in any period of time and expressed in terms of money. This is the level of underemployment equilibrium, according to Keynes. According to the saving investment theory, when investment exceeds saving rival starts from a depression. Keynes regarded the under-employment equilibrium level as a normal case and the full employment income level as a special case. The Keynesian cross model of under-employment equilibrium is explained in Figure 2 where income and employment are taken on the horizontal axis and consumption and investment on the vertical axis. S=f (Y). TOS 7. On the other hand, the ‘real’ income is the total value of real money value of goods and services expressed in terms of a general price level of a particular year taken as the base. It is again a psychological factor which cannot be depended upon to increase the MEC to raise investment. Copyright 10. Increased income leads to a rise in the demand for consumption goods which leads to further increase in employment and income. Summary 6. Keynes Theory of Income and Employment Essay The term ‘classical economists’ was firstly used by Karl Marx to describe economic thought of Ricardo and his predecessors including Adam Smith. Variables 5. If investment exceeds saving, income will increase which will raise aggregate expenditure, output, employment and prices. Chapter 6. Prices are determined by money income and real income. The principal objective factors which influence the propensity to consume appear to be the following: (1) A change in the wage-unit. The saving-investment theory is superior to it because it analyses the effect of money on the price level when there is unemployment in the economy. Reduced expenditure and income lead to a fall in the price level. Thus changes in the price level or value of money are caused by the income and expenditure of the community or by the volume of saving and investment. In 1919, Keynes was a high-ranking advisor in the British delegation to the Versailles conference, tasked with drafting a peace treaty with Germany. On the other hand, a boom does not stop due to decrease in the money supply alone. In June, protesting what he deemed the treaty’s too-harsh terms, he resigned. Given the MEC, when the rate of interest is R2, the level of investment is OI1. On the other hand, income depends upon relation between saving and investment. If, on the other hand, output (О) increases more rapidly than money income (10, prices (P) will tend to fall. More increase in the supply of money is not enough to bring about a revival. If saving exceeds investment, it means that people reduce their expenditure on goods and services. The General Theory of Employment, Interest, and Money By John Maynard Keynes Feburary 1936 Table of Contents • PREFACE • PREFACE TO THE GERMAN EDITION • PREFACE TO THE JAPANESE EDITION • PREFACE TO THE FRENCH EDITION Introduction 1. 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