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The Keynesian cross diagram is a formulation of the central ideas in Keynes' General Theory of Employment, Interest and Money. It first appeared as a central component of macroeconomic theory as it was taught by Paul Samuelson in his textbook, Economics: An Introductory Analysis .
The theoretical system we have described is developed over chapters 4–18, and is anticipated by a chapter which interprets Keynesian unemployment in terms of 'aggregate demand'. The aggregate supply Z is the total value of output when N workers are employed, written functionally as φ(N).
In Keynesian economics, underemployment equilibrium is a situation with a persistent shortfall relative to full employment and potential output so that unemployment is higher than at the NAIRU or the "natural" rate of unemployment.
Post-Keynesian economists, on the other hand, reject the neoclassical synthesis and, in general, neoclassical economics applied to the macroeconomy. Post-Keynesian economics is a heterodox school that holds that both neo-Keynesian economics and New Keynesian economics are incorrect, and a misinterpretation of Keynes's ideas. The post-Keynesian ...
Given Keynesian unemployment, fiscal policy could shift both the labor and goods curves upwards leading to higher wages and prices. With this shift, the Walrasian equilibrium would be closer to the actual economic equilibrium. On the other hand, fiscal policy with an economy in the classical unemployment would only make matters worse.
Generally Keynesian explanations of the curve held that excess demand drove high inflation and low unemployment while an output gap raised unemployment and depressed prices. [68] In the late 1960s and early 1970s, the Phillips curve faced attacks on both empirical and theoretical fronts.
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 importance of the term 'effective demand' to Keynesian Economics in general is shown in the fourth paragraph of the chapter, where he states that this concept of effective demand, i.e. the intersection of the supply and demand functions, is the "substance of the General Theory" and says that "the succeeding chapters will be largely occupied ...