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This short presentation was created to support a discussion concerning the debate between economist J. M. Keynes and the classic economic school of thought. The main purpose of the presentation was understanding why Keynes did not believe that flexible wages would lead to full employment equilibrium.
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Ashraf Islam -‐ Beatrice Irullo -‐ Veronica Jenvild
Keynes VS
the Classics
16-‐10-‐14
h<p://commons.wikimedia.org/wiki/File%3AJohn_Maynard_Keynes.jpg h<p://commons.wikimedia.org/wiki/File%3ATomasMaltus.jpg
‘There is, therefore, no ground for the belief that a
flexible wage policy is capable of maintaining a state
of conRnuous full employment… The economic system
cannot be made self-‐adjusRng along these lines’.
(Keynes 1936: 267)
h<p://commons.wikimedia.org/wiki/File%3AVia_Stabiana_2.JPG
The classics
Labour market
Supply
Demand
Market mechanism
Full employment
Say’s Law
Supply = Demand
Barter economy
Weak version à implied full employment
Strong version à guaranteed
QTM
Price level determinaRon
Classical dichotomy
EffecRveness of monetary policy to increase output/
employment
Keynes effect
W P Md r
Hillier & Vane, Modern Macroeconomics ,2005, p.115, graph (a)
W P Md r I Y
unemployment
h<p://commons.wikimedia.org/wiki/File%3ABernardino_Landete_con_%22Prince_Hind%C3%BA%22..jpg
h<p://commons.wikimedia.org/wiki/File%3ALiquidity_trap_IS-‐LM.svg
NAIRU
Thank you!
Bibliography • Hillier B., The Macroeconomic debate. Models of the closed
and open Economy, Oxford and Cambridge: Basil Blacwell, 1991. ch 2.
• Snowdon, B & Vane H. R., Modern Macroeconomics: Its origins, development and current state, Cheltenham: Edward Elgar, 2005. ch.2.
• Trevithick, J. A., Involuntary unemployment. Macroeconomics from a Keynesian persecDve, London: Harvester Wheatsheaf, 1992. ch 4.
• Keynes, J. M., The general theory of employment, interest and money, 1936. ch.19.