MACROECONOMIC THOUGHTS.Part 4

Īf we agree with the labour market and envisaged that willing workers will be ready to work at prevailing wage, then we must have applied the J.B.Says Law.and classical economists often have problem in explaining involuntary employment and recession. Aggregate demand, the sum total of consumption and investment, in Keynes'model drive employment and output.Investment is driven by many factors, expectation, animal spirits and interest rates and given that consumption often remains stable ,most fluctuations in aggregate demand stem from it . According to him, fiscal policy could compensate for this volatility,  so during downturn, government could increase spending to buy excess goods and employ idle labour.Given the multiplier effect of this direct spending in which newly employed workers reciprocate by spending ther paid income to circulate in the economy,firms could only respond too growing investment, inspired by growth in demand. The notion for strong public investment  entertained by Keynes, had roots to his fears and interest  in uncertainty. In 'A Treatise On  Probability' published in 1921, Keynes, was first inspired by this major statistical inference and exerted strong influence even before his major works.He had strong belief that public investment and fiscal policy could counter negative impacts of economic fluctuations and likely uncertainty, can have on the economy. This certainly played a major role in the investment and liquidity preferences aspect of general theory. Though his successors paid little attention to the probabilistic part of the general theory, the appropriate meaning of the work had long been debated, including heavily debated policy prescription for employment.