publication . Article . 2009

Keynes, investment, unemployment and expectations

Ron Smith; Gylfi Zoega;
Open Access English
  • Published: 01 Jul 2009
  • Publisher: Taylor and Francis
  • Country: United Kingdom
Abstract
In Keynes' General Theory, investment determines effective demand, which determines unemployment and the labour market plays a negligible role. In New Keynesian models, labour market institutions determine the natural rate of unemployment and the speed at which unemployment adjusts to it. Investment is mostly ignored as a key variable behind the problem of high unemployment, despite a strong empirical association between investment and unemployment. We discuss the evolution of the 'Keynesian' model, and how in the process of domesticating the General Theory, the central relationship between unemployment and investment and the role of the state of confidence was ...
Subjects
free text keywords: ems, Economics and Econometrics, Animal spirits, Full employment, Effective demand, New Keynesian economics, General theory, Economics, Centrality, Unemployment, media_common.quotation_subject, media_common, Natural rate of unemployment, Labour economics

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Figure 3. The first two principal components.

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