KEYNESIAN

Followers
-J.B. Keynes

Say's Law
Depressions refute Say's Law
--Demand creates own supply
-Under spending persists

Savings and investments

-Savings not equal to investment
-Different motivations

Savings
-Future needs
-Precaution
-Habit
-Income level
-Interest rate

Investment
-Interest rate
-Rate of profit
-Expectations

Loan able Funds Market
-Investment from savings, cash, checking accounts
-Lending creates money -> Supply of money increases
-Inflation and unemployment are unstable

Wage/price inflexibility
-Prices and wages inflexible downward
-Ratchet effect

Supply curve

-Horizontal

Output and Employment
-Determined by AD

Unemployment
-Usually exists
-Causes:
-External (war)
-Internal (Savings not equal to investment

Aggregate Demand-Changes due to determinants
-Unstable even if money supply is stable due to fluctuations in investment spending

Basic equation
-C + Ig + G + Xn
-1973 - Present

Role of Government
-Fiscal Policy - Tax and spend
-Active government
-Economy is not self regulating

Inflation
Too much demand

How long the short run is

Long time

Emphasis Today
Macroeconomics

Other-
Flawed competition
AD is key; not AS
Leaks + Savings = Recession
Ratchet effects and Sticky Wages block Say's Law
We are doomed in the long run