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Critically discuss any four assumptions of Keynesian theory of employment and income determination.

Critically discuss any four assumptions of Keynesian theory of employment and income determination.

Answers

Joseph
1.wages and prices are fixed ; in the short run producers will respond to changes in demand by changing the quantity they produce rather than price. This implies that the economy is less than full employment.
2.we ignore the money market and concentrate on real sector of the economy, that is,the market for goods and services and also for labour.
3.Consumption (c) and saving (s) are both directly proportional to income (y), the slope of consumption measures the increase in consumption brought about by a unit increase in income (marginal propensity to consume), the slope of the saving line measures the increase in saving brought about by a unit increase in income ( marginal propensity to save).
4.Investment (I) and government spending(G) are independent of income changes.
5. There is no economic growth since the model is concerned with only the short run
Erwoti answered the question on June 20, 2018 at 21:04

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