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Why is investment important to Keynes? What does he think determines investment? 

Oct 27th, 2014

S = I is the macroeconomic equilibrium condition in both Keynes and neoclassical, but in Keynes I => S through changes in Y and in neoclassical S => I through changes in i. In addition, in Keynes the two may be equal at a whole range of potential levels of output and income, only one of which is full employment, while in neoclassical the two may be equal only at full employment.

In Keynes, since consumption is a function of disposable income, and saving is income not spent, saving is also primarily a function of disposable income. S is a passive residual, determined by disposable income and the marginal propensity to consume. 

Reference:

http://cas.umkc.edu/econ/economics/faculty/Forstater/201/201%20doc/KeynesVsNeo.pdf




Oct 27th, 2014

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