In the General Theory of Employment, Interest and Money, John Maynard Keynes wro
ID: 1208761 • Letter: I
Question
In the General Theory of Employment, Interest and Money, John Maynard Keynes wrote: “If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coal mines which are then filled up to the surface with town rubbish, and leave to the private enterprise…to dig the notes up again…there need be no more unemployment and, with the help of the repercussions, the real income of the community…would probably become a good deal greater than it is. a. Which important macroeconomic effect is Keynes discussing here? b. What does he mean by “repercussions”? c. Should he be concerned about the source of those the bank notes, taxes, borrowing or freshly printed cash? Discuss.
Explanation / Answer
a) Multiplier effect. In the Keynesian framework an increase in employment not only lifts the overall output but that output increases by a multiple of the initial rise in demand.
b) Repercussions means an unintended consequence of an action. In this case repercussions refers to increase in personal income due to decrease in unemployment which ultimately increase aggregate demand and GDP by multiplier effect.
c) No he should not be concerned because once an economy takes off from recession and all productive activities are doing good, all other problems are taken care off. ALso he puts empasis on active fiscal policy to care of all problems.