Keynes

unemployment

If wages fall, demand increases and equilibrium is reached = unemployment disappears.

In contrast to neoclassical economics, which says that "if the market is left to its own devices, an equilibrium solution will be reached in the long run.

Keynes asserted, "[In the long run, we will all die.

Liquidity has value.

I'd rather have it in cash than invest or consume it.

demand for labor

Determined by the quantity of goods planned to be produced.

goods

consumer goods

investment asset

Demand for labor declines during recessions.

Comparing the rate of return on investment to the bank's rate of interest, a decrease in the rate of return on investment results in a significant decrease in the production of investment goods

The more recessionary the economy, the more uncertainty about the future, the higher the liquidity preference.

Walras: "The sum of excess demand for the various commodities is zero."

Liquidity preference in the money market creates excess demand for money

This causes "lack of labor demand = unemployment" in the labor market.

Unselling occurs in the commodity market.

Liquidity preference for individuals to rationally prepare for future uncertainty

Raise liquidity to address this problem and lower the interest rate.

zero-interest-rate policy

Buying a house is such a huge loss of liquidity.

The Birth of Keynesian Macroeconomics

Keynesian macroeconomics apply when underemployment occurs.

Back to full employment, neoclassical microeconomics applies.

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