CONCEPT OF CONSUMPTION FUNCTION

One of the important tools of the Keynesian Macroeconomics is the consumption function. Consumption function is simply a name for the general income-consumption relationship embodied in the Psychological law of Consumption given by Keynes. Keynesian general theory of employment is based on the consumption function. In economics, consumption means the amount spent on consumption at […]

Criticism of classical theory

Keynes has attacked the classical theory of employment for its unrealistic assumptions. He criticised classical theory on the following grounds: (1)  Unrealistic assumption of full employment: According to Keynes, in free capitalist economy under employment equilibrium are found in reality and full employment equilibrium is exception. Because in such economies investments are not only inadequate […]

Labour Market (Pigou’s Version)

Pigou’s Version has given final touch to classical theory of employment, who formulated Say’s law in terms of labour market. According to Pigou, under free competition the tendency of economic system is to automatically provide full employment in labour market. Flexibility in wage rate assures equilibrium in labour market with full employment. Real wage rate […]

Criticisms of Keynesian Theory of Employment

Keynesian theory of employment is considered as superior to the classical theory, because Keynesian theory of employment is more scientific and practical to classical theory. Despite this, there are many drawbacks in the Keynesian theory of employment. Economists like Miser, Hayck, Knight, K.K. Kurihara, etc, have criticized the Keynesian theory vary strongly. Some of the […]