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The General Theory of Employment, Interest and Money is a book by English economist John Maynard Keynes published in February 1936. It caused a profound shift in economic thought, [1] giving macroeconomics a central place in economic theory and contributing much of its terminology [2] – the "Keynesian Revolution".
John Maynard Keynes was born in Cambridge, England, in June 1883 to an upper-middle-class family. His father, John Neville Keynes , was an economist and a lecturer in moral sciences at the University of Cambridge and his mother, Florence Ada Keynes , a local social reformer.
Keynes's simplified starting point is this: assuming that an increase in the money supply leads to a proportional increase in income in money terms (which is the quantity theory of money), it follows that for as long as there is unemployment wages will remain constant, the economy will move to the right along the marginal cost curve (which is ...
The phrase "supply creates its own demand" appears earlier, in quotes, in a 1934 letter of Keynes, [3] and has been suggested that the phrase was an oral tradition at Cambridge, in the circle of Joan Robinson, [3] and that it may have derived from the following 1844 formulation by John Stuart Mill: [4]
The usage of long-run and short-run in macroeconomics differs somewhat from the above microeconomic usage. John Maynard Keynes in 1936 emphasized fundamental factors of a market economy that might result in prolonged periods away from full-employment.
Instead, he advocated a simple monetary policy rule of maintaining a steady growth rate in money supply, which would not result in perfect short-run stabilisation, but in accordance with the quantity theory would ensure a steady long-run inflation rate. This came to be the main policy recommendation of the monetarists. [23]
John Maynard Keynes attacked some of these "classical" theories and produced a general theory that described the whole economy in terms of aggregates rather than individual, microeconomic parts. Attempting to explain unemployment and recessions , he noticed the tendency for people and businesses to hoard cash and avoid investment during a ...
In Keynes's Treatise, he explained how recessions could happen, but not long-term depressions. He was able to address this further in The General Theory of Employment, Interest and Money . In his General Theory, Keynes argued against the seesaw theory and said that the economy was more like an elevator that can stop at any level.