WELCOME TO

OUR PRESENTATION
PRESENTATION ON

Chapter 10: John Maynard Keynes

 Course Teacher

Dr. Md. Ariful Islam

Assistant Professor
Department of Economics
Islamic University, Bangladesh-7003
John Maynard Keynes: The Father of
Modern Macroeconomics

• Born on June 5, 1883, in Cambridge,

England.

• Son of economist and logician John Neville

Keynes and social reformer Florence Ada
Keynes.
EDUCATION

Attended Eton College,

known for his brilliance in
mathematics.
Graduated from King's
College, Cambridge

Specializing in mathematics.

Influenced by Alfred Marshall

and economist Arthur Pigou.
 • Questioning Classical
EARLY Economics
THOUGH • Focus on Human Behavior
TS OF JOHN • Skepticism of Laissez-Faire
MAYNARD • Role of Government
KEYNES • Foundations of a
Revolution
 ENTRY INTO PROFESSIONAL
LIFE
• Started career in the British Civil Service, India
Office.
• Published Indian Currency and Finance (1913),
gaining recognition.
• Worked at the Treasury during World War I,
addressing war finances.
 Jesia Aktar Tonny
1907046
Understanding effective demand
 UNDERSTANDING EFFECTIVE
DEMAND

• Effective demand refers to the willingness and ability of consumers to purchase

goods at different prices. It shows the amount of goods that consumers are actually
buying.
• This concept was introduced by John Maynard Keynes in his seminal work, The
General Theory of Employment, Interest, and Money (1936).
• The importance of Keynes view is that Effective Demand may be insufficient to
achieve full employment due to unemployment and workers without income to
produce unsold goods.
Effective Demand is the
point where aggregate
demand (the total planned
expenditure by households,
businesses, government
and foreign buyers) equals
aggregate supply( the
total output produced by the
economy).
CONTRASTS WITH CLASSICAL
ECONOMICS

• Classical view: Markets are self-regulating; any excess

supply(unemployment) will be corrected as prices and
wages adjust.
• Keynesian view: Demand does not automatically adjust
to supply. Without sufficient demand, the economy can
remain stuck in a state of underemployment or recession.
 Name : Tanvir Hasan
Roll:1907008
Topic : The Keynesian Multiplier
Effect.
 THE KEYNESIAN MULTIPLIER EFFECT

• The Keynesian multiplier effect refers to the idea that an

initial increase in spending (such as government investment)
leads to a larger overall increase in economic activity and
income. This concept is central to Keynesian economics,
named after the economist John Maynard Keynes. In essence,
when there is an increase in aggregate demand—whether
through government spending, consumer spending, or
investment—it stimulates further economic activity.
 THE KEYNESIAN MULTIPLIER EFFECT

For example, if the government invests in building new

infrastructure, it creates jobs for construction workers. These
workers then spend their wages on goods and services, which in
turn increases income for other businesses and workers, leading
to a cycle of increased spending and economic growth.
Mathematically, the multiplier (k) is calculated using the formula:
\[ k = \frac{1}{1 - MPC} \] where MPC stands for Marginal
Propensity to Consume, which is the proportion of additional
income that households spend on consumption. The larger the
MPC, the greater the multiplier effect, because more income is
being channeled back into the economy through consumption.
 THE KEYNESIAN MULTIPLIER EFFECT

Example:
Suppose the government spends $100 million on
infrastructure, and the MPC is 0.8. The multiplier would be: \[ k
= \frac{1}{1 - 0.8} = 5 \] This means the initial $100 million
investment could potentially result in a $500 million increase
in overall economic activity.
The multiplier effect highlights the importance of aggregate
demand in driving economic growth and supports the rationale
for fiscal policy measures, especially during periods of
economic downturn.
 Name : Jannati Akter
Roll:1907047
Topic : Role of fiscal policy according
to Keynes
According to John Maynard Keynes, fiscal policy plays
a crucial role in stabilizing the economy and
promoting full employment, particularly during
periods of economic downturns. Keynes emphasized
that governments should actively use fiscal tools,
such as taxation and public spending, to influence
aggregate demand and address economic fluctuations
 The key points of his perspective include:
1. Counter-Cyclical Role : Keynes argued that fiscal policy should be counter-
cyclical: During recessions, when private sector demand is low, the government
should increase spending and/or reduce taxes to boost aggregate demand.
During booms, when demand is excessive and inflationary pressures arise, the
government should reduce spending or increase taxes to cool the economy.
2. Government Spending to Address Unemployment: Keynes believed that
government spending is particularly effective in reducing unemployment during
recessions. He advocated for investment in infrastructure, public works, and
other projects to stimulate demand, creating jobs and income that would, in
turn, spur further spending.
3. Multiplier Effect: Keynes highlighted the multiplier effect, where an initial
increase in government spending leads to a more significant overall increase in
aggregate demand. For example, government-funded projects generate income
for workers, who then spend their earnings, further stimulating economic
activity.
 4. Avoiding Liquidity Traps : In situations where monetary
policy (e.g., lowering interest rates) is ineffective due to a liquidity
trap, fiscal policy becomes the primary tool to boost demand and
avoid prolonged recessions or deflation.
5. Deficit Financing : Keynes argued that governments should
not be overly concerned about running budget deficits during
economic downturns. Borrowing to finance public spending is
justified as it helps restore economic growth, which can later
generate revenue to reduce the deficit.
6. Promoting Full Employment : Keynes emphasized that
achieving full employment is a primary goal of fiscal policy. He
believed that unemployment was often caused by insufficient
demand, which governments could address through targeted fiscal
interventions.
Conclusion For Keynes, fiscal policy was a
vital tool for managing the economy,
ensuring stability, and avoiding the
extremes of booms and busts. His ideas
laid the foundation for modern
macroeconomic theory and continue to
influence economic policies worldwide
 Mst.Fatema Khatun
Roll : 1907050
Topic : Employment Theory
EMPLOYMENT THEORY

The Keynesian theory of employment, developed by John

Maynard Keynes in his seminal work The General Theory of
Employment, Interest, and Money (1936). Keynes challenged
classical economics, which posited that markets are self-
regulating and would naturally lead to full employment.
Instead, Keynes argued that economies could experience
prolonged periods of unemployment without intervention
 KEY ELEMENTS OF
KEYNESIAN EMPLOYMENT
THEORY
1. Effective Demand: Keynes emphasized the role of aggregate demand
as the primary determinant of employment levels. When aggregate demand
is insufficient, businesses cut production, leading to unemployment.
Conversely, higher demand encourages production and job creation.
2. Involuntary Unemployment: Keynes introduced the concept of
involuntary unemployment, where individuals willing to work at the
prevailing wage rate cannot find jobs due to low demand. This challenges the
classical assumption that unemployment is always voluntary (e.g., due to
workers holding out for higher wages).
 KEY ELEMENTS OF
KEYNESIAN EMPLOYMENT
THEORY

3. Rejection of Say's Law: Classical economics relied on Say's Law, which

asserts that "supply creates its own demand." Keynes argued this is not true
in a modern economy, where savings might not translate directly into
investment, leading to demand shortfalls.
4. Role of Government: Keynes advocated for active government
intervention to stabilize the economy during recessions. This includes fiscal
policies like: Public spending: Increasing government expenditures to boost
demand. Tax cuts: Reducing taxes to increase disposable income and
stimulate consumption.
 KEY ELEMENTS OF
KEYNESIAN EMPLOYMENT
THEORY
5. Interest Rates and Investment: Keynes highlighted the
importance of interest rates in influencing investment decisions.
However, he noted that even low-interest rates might not stimulate
investment during periods of low business confidence (a "liquidity trap").
6. Short-Run Focus: Unlike classical economists, who focused on
long-term equilibrium, Keynes concentrated on short-run economic
fluctuations and their impact on employment. Keynesian thought
dominated economic policy during the mid-20th century, particularly
after the Great Depression, and remains influential in modern
macroeconomic debates.
 Name: Kiron Hossen
Roll: 1907010
Topic: The Liquid Preferences Theory
 THE LIQUID PREFERENCES
THEORY

The Liquid Preferences Theory is an

economic theory introduced by John
Maynard Keynes that focuses on setting
interest rates. Keynes proposed this in his
book "The General Theory of Employment,
Interest, and Money" (1936). This theory
basically states that the interest rate
largely depends on the supply of money
and people's choice of liquidity to keep
money.
According to Keynes, people want to keep money in
liquid form for three reasons:
1.Transaction Motive: Keeping money for daily
transactions.
2.Precautionary Motive: Keeping money to meet
unexpected needs.
3.Speculative Motive: Keeping money in the event
of a change in interest rates in the future
KEY FEATURES OF LIQUID
PREFERENCES THEORY:

Interest rates are not just seen as a function of savings

and investment. It is also dependent on people's desire
to hold liquid resources. When interest rates fall,
people are more inclined to hold money in liquid form
instead of investing it, as they think interest rates may
rise in the future. On the other hand, high interest
rates encourage people to invest.
Name: Tasnia Hossain
Roll: 1907049
Topic: The IS-LM model
DEFINE IS-LM MODEL

Basically IS-LM model is a cornerstone of

macroeconomic analysis that helps us
understand the interaction between the real
economy and financial markets.
THE IS CURVE

The IS curve represents

equilibrium in the goods
market, where investment
equals savings. It shows
the negative relationship
between interest rate and
output. That's why the
lower the interest rate
leads to the higher output.
THE LM
CURVE

The LM curve Represents

equilibrium in the money
market, where demand
for money equals to the
supply of money. it has an
upward slope which
shows that higher output
leads to higher interest
rates.
THE IS-LM
MODEL

The intersection
between IS and LM
curves is the IS LM
model that's
determines the
economy's
equilibrium output
and interest rate
THE IS-LM MODEL

This intersection of IS-LM curve allows us to analyze how fiscal

policies, such as changes in government spending, or monetary
policies, like adjustments to the money supply, affect the
economy.
For instance, an expansionary fiscal policy shifts the IS curve
rightward, while an increase in the money supply shifts the LM
curve downward, illustrating different mechanisms to stimulate
economic growth.
THE IS-LM MODEL
In summary, the IS-LM model provides a
valuable framework for understanding the
dynamics of macroeconomic policies and their
impact on national income and interest rates.
 Name: Kamrul Hasan Limon
& Khondokar Abu Saim
Roll- 1907030 & 1907009
Topic- Keynesian Economics in
Modern Context
KEYNESIAN ECONOMICS IN MODERN
CONTEXT
In the modern context, Keynesian economics is particularly
relevant for addressing economic challenges such as
recessions, inflation, and income inequality. Below is a
structured analysis of Keynesian principles and their
application today.
(i) Government Intervention: Keynes showed that full
employment could only be achieved through State help,
because effective demand could only be increased by
enlarging State activity.
Effective Demand = National Income.
= Value of National Output.
= National Expenditure.
KEYNESIAN ECONOMICS IN MODERN
CONTEXT

(ii) Deficit Budget Doctrine: Keynes had been criticized the

policy of surplus budgets. He advocated deficit budgeting, if
that suited the economic situation in the country. Today, Deficit
financing thought is used for the economic development.
KEYNESIAN ECONOMICS IN MODERN
CONTEXT
(iii) Fiscal Policy: Keynes put great emphasis on suitable
fiscal policy as an instrument for checking inflation and for
increasing output and employment in a country.
(iv) Monetary Policy: Monetary policy, as an instrument of
controlling cyclical fluctuations, received due attention from
Keynes. In today, Central bank control over credit now occupies
a very important place in the economic policies of a nation.
(v) National Economic Statistics: Due to Keynesian macro-
economic thought, economists and governments today give a
lot of attention to social accounting.
KEYNESIAN ECONOMICS IN MODERN
CONTEXT
We now see that, in every country, statistics of national
income are being collected. This enables a suitable
economic policy to be evolved and adopted. Examples of
Successful Modern Applications Great Depression Recovery:
Post-World War-II Recovery: 2008 U.S. Financial Crisis:
COVID-19 Pandemic Climate Change:
At the end of my presentation, Thanks to Keynes for finally
moving the world-economy towards a welfare economy.
And the policy of laissez-faire is dead and gone.
 Name: Taqy wasif
Roll: 1907007
Topic: Post keynesian
 POST KEYNESIAN

Post-Keynesian economics is a way of understanding the

economy that focuses on real-life situations. Here's the
simplest breakdown:
1. The Future is Uncertain: People don’t know exactly what
will happen in the future, so they make decisions based on
guesses or expectations, which affects the economy.
2. Spending is Key: The economy grows when people and
businesses spend money. If spending slows down, the
economy struggles, so governments may need to step in to
boost spending.
 POST KEYNESIAN

3. Fairness and Rules Matter: Things like

inequality (rich vs. poor) and rules made by banks or
governments play a big role in shaping how the
economy works.
In short, Post-Keynesians believe that spending,
uncertainty, and fairness are what truly drive the
economy.
 Name: Shahanaz Pervin
Roll: 1907048
Topic: Criticism of Keynesian
economics
 CRITICISM OF KEYNESIAN
ECONOMICS
Keynesian economics faces criticism for several reasons:
• Over-reliance on government intervention, which can
lead to inefficiency and crowding out private investment.
• Deficit spending, which may result in unsustainable public
debt.
• Neglect of supply-side factors like productivity and
innovation, focusing too much on demand.
• Inflationary risks due to excessive demand stimulation.
 CRITICISM OF KEYNESIAN
ECONOMICS
• Assumption of rational government action,
ignoring the challenges of timely and effective policy
implementation.
• Short-term focus that may neglect long-term
economic stability and structural reform.
• Questionable empirical effectiveness, with some
arguing fiscal policies often have smaller impacts
than Keynesian models suggest.