How to understand that Keynes’s General Theory marks the emergence of modern Western economics

If you want to know where the foundation of economics is insufficient, it is recommended to read Keynes’s book "The General Theory of Employment, Interest and Money" . "The General Theory": Author: John Maynard Keynes (1883-1946); one of the most influential economists in modern Western economics. First published: 1936, referred to as "The General Theory" Full title: " "The General Theory of Employment, Interest and Money" is hailed as: a masterpiece that saved capitalism and influenced the course of world history. In "The General Theory", Keynes denied the views of traditional economics. He pointed out that the so-called "General Theory of Employment, Interest and Money" in the past traditional economics Equilibrium is full employment equilibrium based on the erroneous theory that supply itself creates demand. He said that this was only suitable for special circumstances, and that under normal circumstances it was an equilibrium less than full employment. Therefore, he claimed that his employment theory was a general theory, that is, a general theory, which could explain both the situation of full employment and the equilibrium less than full employment. employment situation. Keynes believed that the root cause of this situation was insufficient effective demand, and a country's employment level was determined by effective demand. Effective demand refers to the total demand when the total supply price of commodities and the total demand price reach equilibrium, and the total supply will not change significantly in the short term, so the employment level actually depends on the total demand or effective demand. How to understand Keynes’ theory marks the emergence of modern Western economics

Author: John Maynard Keynes (1883-1946); one of the most influential economists in modern Western economics First published: 1936, referred to as "The General Theory" Full book title: "The General Theory of Employment, Interest and Money" is known as: a famous book that saved capitalism and influenced the process of world history. How to understand the publication of Keynes's General Theory marked the modern West The emergence of economics

John Maynard Keynes (1883-1946) is one of the most influential economists in modern Western economics. From 1906 to 1908, he worked in the Indian Affairs Department of the British Treasury. In 1908, he was a lecturer in economics at Royal College, Cambridge University. In 1909, he founded the Political Economy Club and won the Adam Smith Award for his original book "Method of Index Compilation". ". From 1911 to 1944, he served as editor-in-chief of the Economic Journal. From 1913 to 1914, he served as a member of the Royal Indian Currency and Finance Commission and concurrently as secretary of the Royal Economic Society. In 1919, he served as a representative of the Ministry of Finance at the Paris Peace Conference. From 1929 to 1933, he chaired the British Financial and Economic Advisor. He worked on the committee and was knighted in 1942. He attended the United Nations Monetary and Financial Conference at Bretton Woods in 1944 and served as a director of the International Monetary Fund and the International Bank for Reconstruction and Development. Died suddenly of heart disease in 1946 at the age of 63. Keynes made great contributions to economics throughout his life and was once hailed as the "savior" of capitalism and the "father of postwar prosperity." Keynes was born in an era when Say's Law was worshiped as a god. He believed that capitalism can be maintained by automatically reaching full employment through the power of market supply and demand. Therefore, he has been committed to studying monetary theory. After the economic crisis broke out in 1929, he felt that traditional economic theories were inconsistent with reality and had to be broken through, so he produced the "General Theory of Employment, Interest and Money" (hereinafter referred to as "The General Theory") in 1933. There has been a great breakthrough in theory. Keynes was born into a family of university professors. His father, John Neville Keynes, was a lecturer in philosophy and political economy at Cambridge University, and his mother, Florence Ada Brown, was a successful writer and one of the pioneers of social reform. He entered Persian school at the age of 7 and entered the preparatory class of St. Faith College two years later. His genius gradually emerged, and he graduated at the top of his class in 1894 and won his first mathematics prize. A year later, he was admitted to Eton College and won two consecutive mathematics prizes in 1899 and 1900. He graduated with top marks in mathematics, history and English. In 1902, he successfully obtained a scholarship to King's College, Cambridge (Cambridge University). Keynes is one of the most influential figures in economics. His major work "The General Theory of Employment, Interest and Money" published in 1936 caused a revolution in economics. This work had a profound impact on people's views on economics and the role of political power in social life. Keynes developed a general theory about levels of production and employment. Its revolutionary theory is mainly about equilibrium under the condition of involuntary unemployment: when effective demand is at a certain level, unemployment is possible. Contrary to the classical school of economics, he believed that the simple price mechanism could not solve the unemployment problem. Introducing instability and expectancy, a monetary theory based on liquidity preference is established: the introduction of the concept of marginal effect of investment overturns Say's law and the causal relationship between deposits and investment. These ideas of his provided a theoretical basis for the Communist Party to intervene in the economy to get rid of economic depression and prevent economic overheating, and created the basic ideas of macroeconomics. Keynes made great contributions to economics throughout his life and was once hailed as the "savior" of capitalism and the "father of postwar prosperity." Keynes was not only a theorist but also a practitioner.

He once worked in the Indian Affairs Department of the British Treasury, served as a lecturer in economics at Royal College, Cambridge University, founded the Political Economy Club and won the "Adam Smith Award" for his original book "Method of Indexing", and served as a lecturer in Economics at the Royal College of Economics. Magazine", serves as a member of the Royal Indian Currency and Fiscal Commission, concurrently serves as secretary of the Royal Economic Society, representative of the British Treasury at the Paris Peace Conference, presides over the work of the British Financial and Economic Advisory Committee, attended the Bretton Woods United Nations Monetary and Financial Conference, and served as the International Monetary Fund Organization and Director of the International Bank for Reconstruction and Development. What impact do you think Keynes's "General Theory" had on the development of modern Western economics/

Replacing traditional classical economics, Keynes replaced the price theory of classical economics with the theory of output and employment and used insufficient The employment hypothesis replaced the full employment hypothesis of classical economics. The static equilibrium analysis of classical economics was replaced by moving equilibrium or comparative static analysis. The quantity theory of money in classical economics was replaced by the production theory of money. The classical intervention theory was replaced by ***. The theory of laissez-faire that economics has always sung about, Keynes's revolution created the macroeconomics view, criticized Say's law that "supply creates demand by itself", expanded aggregate demand, and intervened in the economy, opposing liberal Western economics and Keynes. Economics

Keynesianism is the main principle of macroeconomics

How does "Western Economics (Part 2)" understand Keynes's "liquidity trap"?

< p> Keynesian liquidity trap mainly refers to the situation when the economy is weak, if *** increases the money supply and wants to increase investment, however, after people get the banknotes, they do not invest, but use changes in interest rates to buy or Selling a large amount of bonds means that people's speculative demand has become extremely huge. *** No matter how much currency is added, people are still unwilling to invest, but wait for the bonds to be cashed out in the short term.

In this way, the increase in currency The supply policy has undoubtedly encountered a terrible scene, which is like a bottomless pit. In fact, it is a dilemma: without increasing the money supply, investment cannot be provided, but if it increases, investment still does not increase. How to understand is lm The model is the core of Keynesian macroeconomics and the answer to Western economics

The core of Keynesian theory is the principle of effective demand, which believes that national income is determined by effective demand, and the pillar of the principle of effective demand is the marginal propensity to consume The role of the three psychological laws of decline, diminishing marginal efficiency of capital and psychological flow preference. These three psychological laws involve four variables; marginal propensity to consume, marginal efficiency of capital, money demand and money supply. Here, Keynes connected the monetary economy and the real economy through interest rates, breaking the neoclassical dichotomy that separated the real economy and the monetary economy. He believed that money is not neutral, and the equilibrium interest rate in the money market affects investment and income. , and the equilibrium income in the product market will affect money demand and interest rates. This is the interconnection and role of the product market and the money market. But Keynes himself did not use a model to connect the above four variables.

Hansen and Hicks, two economists, used the 1S-LM model to put these four variables together to form a model of how the product market and the money market interact with each other. It determines the theoretical framework of national income and interest rates, thus giving Keynes's effective demand theory a more complete expression. Not only that, the analysis of Keynesian economic policies, namely fiscal policy and monetary policy, is also developed around the IS--LM model. Therefore, it can be said that the IS-LM model is the core of Keynesian macroeconomics. Unemployment theory in modern Western economics

Unemployment refers to the phenomenon of people who have the ability to work and are willing to accept the current wage level but still cannot find a job.

According to the definition of the International Labor Organization, unemployment refers to people above a certain age who are not working during the examination period, but are capable of working and are looking for work. From the perspective of the entire economy, the population of a certain age is usually called the working-age population. Some of them are working and are called employed, and some of them are looking for work but have not yet found it, called the unemployed. There is also a part of the population that is unwilling to work or not looking for a job, which is called the non-working population. The ratio of the unemployed population to the working population is the unemployment rate.

Types of unemployment:

1. Voluntary unemployment and involuntary unemployment

There are many types of unemployment, which are based on subjective willingness to work or not, that is, voluntary unemployment and involuntary unemployment. Involuntary unemployment.

The so-called voluntary unemployment refers to the unemployment caused by workers who require actual wages exceeding their marginal productivity, or who are unwilling to accept current working conditions and income levels and are not employed. Since this kind of unemployment is caused by the subjective unwillingness of the working population to be employed, it is called voluntary unemployment and cannot be eliminated through economic means and policies, so it is not within the scope of economics.

The other is involuntary unemployment, which refers to the phenomenon of people who have the ability to work and are willing to accept the current wage level but still cannot find a job. This kind of unemployment is caused by objective reasons and can be eliminated through economic means and policies. Unemployment in economics refers to involuntary unemployment.

2. Frictional unemployment, structural unemployment and cyclical unemployment

Involuntary unemployment can be divided into several types, including frictional unemployment, structural unemployment and cyclical unemployment. cyclical unemployment.

Frictional unemployment refers to short-term, regional unemployment that is unavoidable in the production process and caused by changes in occupations and other reasons. The nature of this unemployment is transitional or short-term. It usually originates from the supply side of labor, so it is regarded as a kind of job-seeking unemployment, that is, on the one hand, there are job vacancies, and on the other hand, there are corresponding number of unemployed people looking for jobs. This is because of the lack of labor market information. It is not complete, and it takes a certain amount of time for manufacturers to find the employees they need and for the unemployed to find suitable jobs. Frictional unemployment exists in any period and will tend to increase as the economic structure changes. However, from the perspective of economic and social development, the existence of this kind of unemployment is normal.

Structural unemployment refers to the unemployment caused by the mismatch between labor supply and demand. It is characterized by both unemployment and job vacancies. The unemployed either do not have suitable skills or live in the wrong place, so they cannot Fill existing job vacancies. Structural unemployment is long-term in nature and usually originates on the demand side of labor. Structural unemployment is caused by economic changes that cause the demand for a particular type of labor in a particular market and region to be relatively lower than its supply.

The relatively low demand for labor in a specific market may be caused by the following reasons: first, technological changes, the original workers cannot adapt to the requirements of new technologies, or technological progress reduces the demand for labor; second, is a change in consumer preferences. Changes in consumer preferences for products and services have led to the expansion of some industries and the shrinkage of other industries. As a result, the labor force in the shrinking industries has lost their jobs; the third is the immobility of the labor force. The existence of mobility costs restricts the flow of unemployed people from one place or industry to another, thus making structural unemployment exist for a long time.

Cyclic unemployment refers to the unemployment caused by the decline in total social demand during recessions or depressions in the economic cycle. When the economic development is in a recession period in a cycle, the total social demand is insufficient, so the production scale of manufacturers also shrinks, leading to a more common unemployment phenomenon. The impact of cyclical unemployment on different industries is different. Generally speaking, industries with greater income elasticity of demand will have more serious impacts of cyclical unemployment.

Unemployment will have many impacts, which can generally be divided into two types: social impact and economic impact.

Although the social impact of unemployment is difficult to estimate and measure, it is most easily felt. Unemployment threatens the stability of the family as a social unit and as an economic unit. Without income or loss of income, household heads cannot function as they should. The demands and needs of the family are not met and family relationships suffer as a result. Relevant Western psychological research shows that dismissal causes as much trauma as the death of a relative or friend or academic failure. In addition, relationships outside the home are also severely affected by unemployment. An unemployed person loses his self-respect and influence among employed people, faces the possibility of rejection by colleagues, and may suffer a loss of self-esteem and self-confidence. Ultimately, the unemployed are emotionally devastated.

The economic impact of unemployment can be understood using the concept of opportunity cost. When unemployment rises, goods and services in the economy that could have been produced by unemployed workers are lost. Losses during a recession can be likened to the destruction of numerous cars, homes, clothing, and other items. From the perspective of output accounting, the total income loss of the unemployed is equal to the loss of production. Therefore, the lost output is the main measure of measuring cyclical unemployment losses because it indicates that the economy is in a state of sub-full employment. In the 1960s, American economist Arthur Okun proposed an empirical relationship between unemployment changes and output changes in the business cycle based on American data, which is called Okun's law.

Okun's law states: For every one percentage point the unemployment rate is higher than the natural unemployment rate, actual GDP will be two percentage points lower than potential GDP. Put another way, for every two percentage points decrease in real GDP relative to potential GDP, the actual unemployment rate rises by one percentage point above the natural rate of unemployment.

Western scholars believe that Okun's law reveals the extremely important relationship between the product market and the labor market. It describes the connection between short-term changes in real GDP and changes in the unemployment rate. According to this law, changes in GDP can be predicted or estimated through changes in the unemployment rate, and changes in the unemployment rate can also be predicted through changes in GDP. For example, if the actual unemployment rate is 8%, which is 2 percentage points higher than the natural unemployment rate of 6%, the actual GDP will be about 4% lower than the potential GDP. Macroconcept of Western Economics Part: How to Understand Keynesian Consumption Function

Keynesian consumption function has made great contributions to the study of consumption: 1. It is proposed that consumption depends on current income. 2. It is proposed that when income increases, consumption increases, but the increase in consumption is lower than the increase in income.

Disadvantages: Consumption does not depend on current income. In fact, consumption depends on past income, as well as current and future income; consumers always smooth consumption based on their lifetime income.

Therefore, latecomers proposed the permanent income theory, life cycle theory, etc. The similarities and differences between Keynesian economics and Keynesian economics

Keynesian economics is Keynes’ personal economic thought system, while Keynesian economics is the entire school represented by Keynes that was developed on the basis of Keynes and developing systems of economic thought.