Macroeconomics, 2nd Edition by Pearson

274

MACROECONOMICS

Keynesians are of the view that the low

AD

is due to low confidence of

investors regarding the future prospects of the economy.

5

Investment demand

is thought by the Keynesians to be unresponsive to the rate of interest, and

the

IS

curve is considered to be steep,

6

implying that crowding out of private

expenditures would be low (see Figure 8.16 in Chapter 8). The Keynesians

accordingly advocate a

FISCAL

POLICY

to reduce the existing involuntary unem-

ployment. Keynes had taken this position after considering the facts of the

Great Depression when the stock markets declined by 85 per cent between

September ...