The importance of Keynes’ concept of effective demand is clear from the following points: I. Criticisms of Keynes’ Theory of Money and Prices: Keynes’ views on money and prices have been criticised by the monetarists on the following grounds: 1. But, the economy prior to the implementation of the stimulus package was not allocating resources to where they had the highest value. Suppose that the economy is initially at the natural level of real GDP that corresponds to Y 1 in Figure . This lofty On the other side of the debate, Keynesian economics rejected this orthodox understanding of money. As a result, the theory supports the expansionary fiscal policy. The Keynesian theory of money demand emphasizes the importance of. In Keynes’ theory, the rate of interest is a monetary phenomenon determined by the equality between the demand for and supply of money. According to Keynesian theory, this leads to an increase in aggregate demand followed by a multiplied increase in output. Keynes hypothesized that the transactions component of money demand was primarily determined by the level of. • In this book, he developed his theory of money demand, known as the liquidity preference theory, which is a theory of money demand that emphasized the importance of interest rate. Correct Answer: all of the above All the answers are correct. • Keynes rejected the classical view that velocity was a constant. Keynesian economics developed against the background of the Great Depression of the 1930s. Interest rate on the demand for money. Conversely, Fried-man detracts from the true quantity theory by stating that its formal Baumol-Tobin Money Demand Model(s) These are further developments on the Keynesian theory Variations in each type of money demand: transactions demand is also affected by interest rates so is precautionary demand speculative demand is affected not only by interest rates but also by relative riskiness of available assets Bottom line: demand for money is still positively The existence of an uncertainty about the future gives rise to the speculative demand for money. It shows, first, that the conceptual framework of a portfolio demand for money that Friedman denotes as the "quantity theory" is actually that of Keynesian economics. Keynesian economics argues that the driving force of an economy is aggregate demand—the total spending for goods and services by the private sector and government. The effect of the Depression on the U.S economy can be seen in picture below, which shows the annual unemployment rates for … In this scheme on an average he will be holding Rs. Graphical illustration of the Keynesian theory. The monetarist revival of the quantity theory The Keynesian revolution overwhelmed the traditional quantity theory and for a long time its acceptance was so complete that it was above challenge. Keynesian economics is a theory that says the government should increase demand to boost growth. Keynes asserts that the liquidity preference and the quantity of money determine the rate of interest. In Keynesian economics, demand is crucial—and often erratic. 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