The Market Stagnates

Part of the Economics Today book series (ET)


The theory of macroeconomic policy may have begun with Keynes and his followers but its development into a rigorous body of thought owes much to the synthesising of Keynes’s theory into a form that was readily understood by those with a Classical background. The integration of Keynesian economics into mainstream economic thinking began with the neo-Keynesian synthesis. This was an attempt by leading economists who were sympathetic to Keynesian thinking to formulate his ideas into an easily understandable form. This research programme produced the tools of analysis used by students of economics today. The neo-Keynesian synthesis demonstrated that under certain conditions the economic system could be pushed out of full employment equilibrium and come to rest in a situation of unemployment equilibrium. The term equilibrium is vital to understanding this assertion. Economists use the term equilibrium to define a position of balance. We can think of it as a situation where a physical object is at rest, with no forces being exerted on it to move it from that position. The best example of this in economics is of course the forces of supply and demand.


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© Kent Matthews 1994

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