In this article we will discuss about the role of Aggregate Demand (AD) and Aggregate Supply (AS) in the Keynesian Model, explained with the help of a suitable diagram. In the Keynesian model an important role is played by aggregate demand, which consists of four components. First, there is household consumption, the main component of aggregate demand. Secondly, there is [...]
In this article we will discuss about the over-investment theory of business cycle. Also learn about the criticisms of the theory. A major variant of the pure monetary theory of the business cycle is the over-investment theory developed by Prof. V. Hayek. According to him, the over-issue of bank credit at artificially low interest rates is responsible for causing fluctuations [...]
Get the answer of: What happens to Keynesian Multiplier in an Open Economy? In Keynes' model equilibrium output can be calculated as follows: Since C – a + bY and AE – C + I = a + bY + l, and since in equilibrium, aggregate expenditure equals income, AE = Y, we have Y0 = a + bY + [...]