i. Keynes did not accept the classical view that reduction in money wages led to full employment.
ii. He emphasized that unemployment could be removed by raising the effective demand.
iii. According to Keynes, a cut in money wages applied to the economy as a whole reduces employment rather than increasing it.

i. According to Say‘s Law, full employment is maintained by an automatic and self adjustment mechanism in the long run.
ii. But Keynes had no patience to wait for the long period for he believed that – In the long run we are all dead.
iii. It is not the automatic adjustment process which removes unemployment.
iv. But unemployment can be removed by increase in the rate of investment.

i. According to Keynes there is wageprice rigidity.
ii. In the real world it is not possible to reduce the wages on account of government policy and due to the existence of trade unions.
iii. So the wages are more or less rigid rather than flexible

The amount that households, firms, the governments and the foreign purchasers would like to spend on domestic output.

The following are the criticisms against Say’s law:
1. According to Keynes, supply does not create its demand. It is not applicable where demand does not increase as much as production increases.
2. Automatic adjustment process will not remove unemployment. Unemployment can be removed by increase in the rate of investment

i. Modern technology being capital intensive requires lesslabourers and contributes to technological unemployment.
ii. Now a days, invention and innovations lead to the adoption of new techniques there by the existing workers are retrenched

i. Seasonal Unemployment type of unemployment occurs during certain seasons of the year.
ii. In agriculture and agro based industries like sugar, production activities are carried out only in some seasons.
iii. These industries offer employment only during that season in a year.

(i) Consumption Demand
(ii) Investment Demand
(iii) Government Expenditure
(iv) Net Export (Export - Import)

(i) Aggregate (desired) consumption expenditure (C)
(ii) Aggregate (desired) private savings (S)
(iii) Net tax payments (T)
(iv) Personal (desired) transfer payments to the foreigners (Rf)
AS = C + S + T + Rf

(i) Effective demand is the money spent on consumption of goods and services and on investment.
(ii) Employment and output depends on the level of effective demand
(iii) When effective demand increases, employment will increase.
(iv) Effective demand is determined by aggregate supply and aggregate demand.

1. No single buyer or seller can affect the price.
2. Full employment
3. People are motivated by self interest Market forces determine everything right.
4. Perfect competition exists in labour and product market.
5. There is wage price flexibility.
6. Money acts as medium of exchange.
7. Long run analysis.
8. No overproduction or unemployment.

(i) Invention and innovations lead to the adoption of new techniques.
(ii) So existing workers are retrenched.
(iii) This is called technological unemployment.
(iv) It is due to the use of labour saving devices.

(i) It arises due to imbalance between supply of labour and demand for labour.
(ii) It is because of immobility of labour, lack of necessary skills, breakdown of machinery, shortage of raw materials.
(iii) The persons who lose jobs and in search of jobs are also included.

The major feature of rural unemployment is the existence of unemployment in the form of disguised unemployment and seasonal unemployment.

(i) "Full employment is the absence of involuntary unemployment." - Keynes
(ii) "Full employment is that level of employment at which any further increase in spending would result in an inflationary spiral of wages and prices" - Lerner