Please enable JavaScript.

Coggle requires JavaScript to display documents.

The General Theory of Employment - Coggle Diagram

- - - - effective demand
        
        Keynes also criticized Say’s law of a possible “automatic” compensation where for every excess supply of goods in one market, there is a corresponding shortage of demand in another. Simply put, “supply creates its own demand” and therefore any excess of supply would lead to a corresponding compensation of demand in another market. However, Keynes argued that the existence of an excess of supply meant the existence of weak demand, which would consequently lead to unplanned accumulation of inventories. This would lead to a decrease in production and the aggregate level of income, and, consequently, increased unemployment, creating a downfall on the entrepreneurs’ (or investors) investment appetite, thereby reducing the aggregate level of output.
      - aggregated consumption function
        
        total consumption is influenced by both an amount of autonomous consumption, that is not determined by our level of income, and an amount of induced consumption, which has a positive and almost-direct connection with an economy’s level of output.
      - liquidity preference
        
        there is a negative relation between interest rates and the demand for money. The highter the intrest is, the lower is the demand for money
        
        ver aulas
      - mg efficiency of capital
        
        “the rate of discount which would make the present value of the series of annuities given by the returns expected from the capital asset during its life just equal its supply price”
        
        The marginal efficiency of capital (MEC) is that rate of discount which would equate the price of a fixed capital asset with its present discounted value of expected income
        
        taxa líquida de retorno esperada da compra de capital adicional
        
        the marginal efficiency of capital is not
        determined, unless the level of money-income is given
      - multiplier effect
        
        the fiscal multiplier is the ratio of change in national income arising from a change in government spending. More generally, the exogenous spending multiplier is the ratio of change in national income arising from any autonomous change in spending.
  - - - concepts
        
        effective demand
        
        "I say that effective demand is made up of two items - investment-expenditure determined in the manner just explained and consumption-expenditure"
        
        consumption expenditure - It depends mainly on the level of income. People's propensity to spend (as I call it) is influenced by many factors such as the distribution of income, their normal attitude to the future and - tho probably in a minor degree - by the rate of interest. But in the main the prevailing psychological law seems to be that when aggregate income increases, consumption-expenditure will also increase but to a somewhat lesser extent.
        
        investment expenditure - variations on inv exp depend on the marginal efficiency of capital. Being that interest rates directly impact the level of investment made in any market and, consequently, the market prices of capital; It is safe to assume that interest rates impact the marginal efficiency of capital.
        
        the marginal efficiency of capital is not
        determined, unless the level of money-income is given. For a new level of money income to be generated, there needs to be a variation in the interest rate. Thus, "it is truer to say that it is the rate of interest that determines the marginal efficiency of capital" (p.223)
        
        Consequently, if the interest rate decreases, the gain of one more unit of capital will be higher when compared to the previous situation (and vice versa). Ergo, the total amount of investment expenditure has a almost direct negative relation with interest rate
        
        Nota importantissima - referir liquid preferences
        
        Rejection of Say's Law
  - - - money supply through monetary policy in order to correct market failures
      - effective demand through fiscal policy (decrease of liquid income means less consumption)
      - how does this amount to public investment