a) Critically evaluate Keynes` General Theory. (b) Compare and contrast the General Theory and the Classical Theory. (c) Evaluate the contributions of Keynes` General Theory to Economics

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a ) Critical evaluation of Keynes Economic Theory

Keynes economic theory was developed by a British Economist John Maynard Keynes , which explains the cause of less than full employment and role of government or activist

Policies to stabilize the economy at equilibrium at or near full-employment with acceptable expected inflation . After Keynes the fiscal policy objective was to manage aggregate demand and use the fiscal policy to redistribute income so that to have more consumption expenditure compared to the more unequal distribution of income in a market economy

and use monetary policy to control inflation when the economy is closer to full-employment level

The effectiveness of any theory must be evaluated from the perspectives whether it has solved the economic problems it raises and whether it has the credible empherical evidence to support its stance . As well whether it has given new insights in to the working of the economy and explains economic phenomenon better than previous theories and the existence of credible criticism of the theory and whether the theory has addressed these credible weaknesses identified by different economic schools of thought especially by classical and neoclassical economic schools of thought sufficiently and are they used to develop formulate economic policies based on the theory compared to competing theories or are they used in combination with other insights in contemporary market economic systems and their effectiveness in solving macroeconomic issues

On the basis whether Keynes economic theories has solved the economic problem of unemployment with acceptable inflation and the economic evidence supports this is questionable . This is because in 1970 's and 1980 's all the major industrialized market economies of US , UK , Germany France etc experienced high level of inflation and un acceptable level of unemployment even though they based their economic policies based on Keynesian economic policies of demand management and activist fiscal policy and deficit financing . However before this period the Keynesian economic polices were successful in solving unemployment problems after the world war II period and the economy experienced high employment rates than ever before . This shows the Keynesian Page : 2

economic polices are inflationary in nature at least in the perspectives of the neoclassical and classical school of economist . In the contemporary economic policymaking Economist mostly rely in controlling inflation as a macroeconomic objective than full-employment and insist on the labor market reform as a method to address unemployment

because they attribute unemployment because of inflexible labor market due to political influences and government involvement in the regulation and determination wages as well as trade union power and inflexibility in the labor market which causes unemployment rather than due to inadequate aggregate demand as well as a source of inflation . However in solving unemployment at least in short-term monetarist policies alone did not alleviate unemployment because of its negative impact on aggregate demand and effects on economic activity and investment levels at least in the short term

In accordance with monetarist view involuntary unemployment cannot exist and if market forces are allowed to...