Keynes and the Classical theory

1
Keynes and the Classical theory

• In the 1930s, wage rates fell and employment did
  not increase as classical model predicted.

2
Keynes and the Classical theory

• In the 1930s, wage rates fell and employment did
  not increase as classical model predicted.
• Real wages do not fall as quickly and
  significantly to solve unemployment problem as
  classical model suggest.

3
Keynes and the Classical theory

• Money and financial Markets
• According to the classical model, increase in the
  money supply will increase aggregate demand for
  goods and services directly.

4
Keynes and the Classical theory

• Money and financial Markets
• According to the classical model, increase in the
  money supply will increase aggregate demand for
  goods and services directly. Keynes argued that
  classical economists overstated the impact of the
  money supply on the economy. He argued that

5
Keynes and the Classical theory

• He Money and financial Markets
• According to the classical model, increase in the
  money supply will increase aggregate demand for
  goods and services directly. Keynes argued that
  classical economists overstated the impact of the
  money supply on the economy. He argued that money
  is one of assets that households keep. A change
  in the money supply disturbs their equilibrium
  and therefore they have to re-allocate their
  assets, including money holdings.

6
Keynes and the Classical theory

• He Money and financial Markets
• According to the classical model, increase in the
  money supply will increase aggregate demand for
  goods and services directly. Keynes argued that
  classical economists overstated the impact of the
  money supply on the economy. He argued that money
  is one of assets that households keep. A change
  in the money supply disturbs their equilibrium
  and therefore they have to re-allocate their
  assets, including money holdings. This means
  demand for money must depend on the rate of
  interest.