MACROECONOMIC THOUGHTS PART 3

There is no empirical iota of doubt that mordern macroeconomics was begun by John Maynard Keynes specifically with the publication of his book, The general theory of Employment, Interest  and Money in 1936,the most widely read economic book of the twentieth century where he expanded liquidity preferences concept and built  complete or general theory of how  entire economy worked for the first time.It was landmark or unprecedented and the world became his ovation. In this masterpiece, he brought together monetary and economic factors, explained how to achieve economic stability with the right policy . Building on previous achievement, from the classical andthen neoclassical, he became by virtue of antecedent, the father of macroeconomics in the much same that we credit, Adam Smith, with the honour, 'the father of modern economics. 'He contended beyond a reasonable doubt that economic output is positively correlated ith velocity of money and explained relationship through liquidity preferences. That during difficult economic times, people tend to increase their money holding and similarly  reduce their spending, in an attempt to survive thestorm . According to him, this paradox of thrift,to escape the downturn by individuals tends to worsen it . When money demand increases, money velocity declines and such slow down might mean market might not clear, wasting excess capacity, goods and idle labour left unused.He argued that market changes quantity not prices and replaced stable velocity assumption with one of fixed price level.He also argued that the crash of spending does not necessarily leads to crash of prices, leaving surplus of goods to reduce the need for workers and grow employment.