Keynesian Theory of Employment (Part 2) Video Lecture | Macro Economics - B Com

Ans. The Keynesian theory of employment, also known as Keynesian economics, is an economic theory proposed by economist John Maynard Keynes. It suggests that government intervention is necessary to stabilize an economy during periods of recession or depression. Keynesian theory emphasizes the importance of aggregate demand in driving economic growth and suggests that government spending, tax cuts, and monetary policies can be used to stimulate demand and increase employment levels.

Ans. According to the Keynesian theory of employment, unemployment occurs when there is insufficient aggregate demand in the economy. When consumer spending and private investment decrease, businesses respond by reducing production and laying off workers, leading to higher unemployment rates. Keynesian economists argue that during times of economic downturn, the government should step in and increase its own spending or implement policies that encourage consumer spending to boost aggregate demand and reduce unemployment.

Ans. The Keynesian theory of employment suggests several policy recommendations to address unemployment and stimulate economic growth. These include: 1. Increase government spending: Keynesians argue that during economic downturns, the government should increase its own spending on infrastructure projects, education, healthcare, etc. This increased spending will create jobs and stimulate demand. 2. Implement tax cuts: By reducing taxes, individuals and businesses have more disposable income, which can lead to increased consumer spending and private investment. 3. Use expansionary monetary policy: Keynesians recommend that central banks lower interest rates and increase the money supply to encourage borrowing and investment. 4. Provide unemployment benefits: Keynesian economists advocate for the provision of unemployment benefits to support individuals who have lost their jobs during a recession. This helps to maintain their purchasing power and stabilize aggregate demand. 5. Implement counter-cyclical fiscal policies: Governments should adjust their spending and taxation policies in response to changes in the business cycle, aiming to stabilize the economy by offsetting fluctuations in private sector spending.

Ans. The Keynesian theory of employment differs from classical economics in several key ways. Classical economics, based on the ideas of economists like Adam Smith and David Ricardo, emphasizes the role of self-regulating markets and the importance of supply-side factors in determining economic outcomes. In contrast, Keynesian economics focuses on the demand-side factors and the role of government intervention. Key differences include: 1. Government intervention: Classical economics believes in minimal government intervention and promotes laissez-faire policies, while Keynesian theory suggests that government intervention is necessary to stabilize the economy during economic downturns. 2. Aggregate demand: Keynesian theory highlights the importance of aggregate demand and suggests that fluctuations in demand can lead to unemployment, while classical economics focuses more on the supply-side factors such as production and efficiency. 3. Say's Law: Classical economists believe in Say's Law, which states that supply creates its own demand. In contrast, Keynesian theory argues that demand can fall short of supply, leading to unemployment and economic downturns. 4. Rational expectations: Classical economics assumes rational expectations, while Keynesian theory acknowledges that individuals and businesses may have limited information and make decisions based on incomplete information, leading to fluctuations in aggregate demand.

Ans. The Keynesian theory of employment has influenced economic policies in many countries, especially during times of economic crisis. It was particularly influential during the Great Depression in the 1930s. Governments around the world implemented Keynesian policies, such as increased public spending and infrastructure projects, to stimulate demand and reduce unemployment. However, the extent to which Keynesian policies have been implemented varies across countries and over time. In recent decades, there has been a shift towards more free-market approaches in many countries, with less reliance on government intervention. Nevertheless, Keynesian ideas and policies continue to be debated and implemented to some extent, especially during periods of economic recession or crisis.