Introduction

Unemployment in macro economic level is a serious socio-economic problem in the sense that it not only affects the families of unemployed but also have impact on economic resources like unemployed land or capital, achieving zero productivity for the increased opportunity cost.

Some economist, basically classical economist believes that the unemployment or productivity need not to be cured through government intervention but cure itself by natural demand and supply position in the market. They argued that there could be some side effects if there is any external or government interference, which are unpredictable. But, other economist opposed this statement of self regulating economy and suggests that the government intervention is necessary to attain full productivity at a reasonable span of time. Therefore Keynesian theory was propounded byJohn Maynard Keynes, 20th century British Economist. Besides being an economist he was also held as a public administrator, writer and advisor to many non profit organisations and was a director of Bank of England. Also he was being an active farmer and investor. His theories, based on macro economics were primarily presented in ‘The General Theory of Employment, Interest and Money’, printed in 1936.

Keynesian theory

Keynesian economy throws light into the impact on macro economic decisions through government interference by taking monetary and fiscal policies of fundamental banking regulations and out put stabilization measures to moderate the downturn and dejection.

Keynes major criticism was against the classical economics theory based on demand and supply which emphasises on providing full employment holding elastic wage demands in short to medium term free markets. Keynes outlook was that the general economic activity can be established from the total demand in the market, focusing adequacy of total demand in attaining full employment and explains how insufficient total demand will lead to unemployment for a long period.

Keynesian theory expresses the correlation of total income and expenditure on the basis of employment and price level changes. Keynesian theory believe that in order to attain a real GDP deficit financing is necessary, for that government spending should be made. Only through proper spending tax can be reduced and will result insertion of GDP. It is explained that, in Keynesian theory of income and expenditure the actual level GDP available will be steady with the total expenditure. That is, if the actual GDP is not covered by the current total expenditure or spending, then the aggregate expenditure will be equal only when the point of actual GDP move forward with the decrease in output until total expenditure equals actual GDP.

Assumptions of Keynesian economy

Inelastic Prices:

Keynesian economist believes that the prices are not flexible; if an increase in price occurs it is averse for any cutback. For example, it is easy to hike salaries but fall will cause some opposition. So also increase in price of commodity will be an advantage to the producer but not to the consumer.