Macroeconomices Research Proposal Example | Topics and Well Written Essays - 1750 words

Macroeconomices - Research Proposal Example Few economists would argue that the birth of modern macroeconomics can be dated back to the upsetting incidents of the 1930s and most particularly the perspectives of John Maynard Keynes (1936) conveyed in the General Theory of Employment, Interest and Money which is basically a response to these traumatic events. Prior to the Keynesian revolution the prevailing classical assumption was that while consumerist economies would be subjected to episodic distresses, market forces would function promptly and successfully to restore complete employment equilibrium (Ahiakpor 2003). In such conditions government intervention to calm down the economy was judged to be neither essential nor favorable. The Great Depression, which bears witness to a terrible collapse in output and increase in unemployment rate, seemed to blow apart the classical theory that complete employment was the normal state of affairs (ibid). Writing in this setting, Keynes argued that capitalist market economies are intrinsically unstable and can only be stabilized at less than complete employment for protracted periods. This insecurity was for Keynes largely the consequence of fluctuations in collective demand. The Great Depression, he disputed, resulted above all from a razor-sharp reduction in the level of investment expenditure â€Å"occasioned by a cyclical change in the marginal efficiency of capital† (Snowdon & Vane 1999: 2) with the related harsh uncontrolled unemployment illustrating a state of scarce aggregate demand. The indication of Keyne’s analysis was that government intervention, in the structure of flexible fiscal and monetary policy, could assist improve such aggregate insecurity and even out the economy at full employment mode. Capitalism could be resurrected but not in accordance to the nineteenth-century laissez-faire belief (ibid). The immediate acceptance of Keynesian in the intellectual community and policy-making societies guaranteed that throughout the 1950s