Question

a full page answer:

What is Keynes’ critique of his predecessors work (which he refers to as the “classical school”)?

Answer 1

Keynes' criticism of classical school-

1.Keynes rejected the assumption of the classical model that full employment is a normal situation and the only type of unemployment that exists in the economy is voluntary.Keynes believed that full employment is a desirable but hypothetical situation.The reason is that the capitalist economy does not function according to Says law(especially during recession).

2.Keynes rejected the Says law of market with his theory of effective demand.When savings is not invested,there is deficiency in aggregate demand and there is overproduction in the economy which further leads to general unemployment.

3.The price mechanism does not work automatically.Keynes believed that prices are rigid.It means that prices do not adjust immediately to changes in market.This can be due to menu coat(the additional cost of printing a new menu) or due to consumer's psychology.

4.Government intervention is necessary.Keynes rejected the classical idea of laissez faire and self adjusting market.He stressed that government intervention is necessary in the form of fiscal policies to stabilize the economy.The private enterprises sometimes fall into slumps.This can only be corrected by credit injections by the government.