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 SEMESTER – II   MACROECONOMIC     10.   EQUILIBRIUM LEVEL OF EMPLOYMENT                                   OR Equilibrium Level of Employment and Real National Income. Increase in the level of Employment& Real National Income. Limitations of the Keynesian Theory of Employment ANS: The equilibrium level of employment and real national income is determined at the point of equality between the aggregate demand price and the supply price. Employment and real output continues to rise if demand price is greater than the supply price and stops at the point of equality. You will notice from Table 2.3 below that when four million workers are employed the AD price and the AS price are equal i.e., Rs.800 Billion. This point of equality is the point of Effective demand. If employment is increased beyond the point of effective demand, the aggregate demand price will fall below the supply price and the class of entrepreneurs will make losses.     The equilibrium level of employment and real national income or the point of effective demand can be diagrammatically shown as in Fig.2.3 below. Fig. 2.3: Equilibrium Level of Employment and Real National Income. In Fig. 2.3 above, the two curves ADP and ASP intersect each other at point ‘E’. Point ‘E’ is the point of effective demand. Corresponding to point ‘E’, point ‘R’ on the Y-axis indicates equilibrium receipts and point ‘N’ on the X-axis indicates equilibrium level of employment and real national income. However, point ‘E’ is only an under employment or less than full employment equilibrium as full employment level is indicated by point ‘F’ on the aggregate supply curve. Per Keynes, the economy achieves equilibrium at less than full employment level because the gap between income and consumption is not fully filled up by investment. Both investment and savings are made by two different classes. While savings are made by the household sector, investments are made by the class of entrepreneurs. Hence, investment cannot be equal to saving. If aggregate investment is less than aggregate savings, economy will operate at less than full employment level. Increase in the Level of Effective Demand and Employment Per Keynes, the aggregate supply function is constant in the short run because the productive capacity of the economy cannot be increased in the short period. However, the level of effective demand and employment can be increased by increasing the aggregate demand function. This is shown in Fig.2.4 below.   Fig. 2.4: Increase in the level of Employment& Real National Income. In Fig. 2.4 above, the aggregate demand price curve ADP1 intersects the aggregate supply price curve ASP at point E1 and ON1 level of employment is determined. When the aggregate demand is increased the ADP, curve shifts upwards and intersects the ASP curve at point E2 and a higher level of employment i.e. E2 is determined. It may be concluded that the level of employment in an economy can be increased if aggregate demand is increased. Aggregate demand can be increased if either investment demand or consumption demand increases.   Limitations of the Keynesian Theory of Employment The Keynesian theory of employment and real national income is criticized on the following grounds: 1. Relevant to Free Market Economy. The Keynesian theory is applicable only in free market capitalist economies which operate based on market mechanism. It is not relevant to other economic systems such as socialism where all economic decisions are taken by the government. It is also not relevant to a mixed economy where the role of the government is substantially large. 2. Keynesian Theory is Relevant to Depression. Keynes wrote his General Theory in 1936. Both Europe and America were caught in the great economic depression during the first half of the 20th century. Keynes prescribed increased Government expenditure to increase the level of effective demand under conditions of recession. However, the theory cannot be applied under the conditions of jobless growth when economy grows along with fall in employment and stagflation when prices rise but employment and output falls. 3. Keynesian Theory is not relevant to open Economies. Keynes did not consider the impact of international trade and investment on national economies. Keynes assumed a closed economy while writing his theory. 4. Keynesian Theory is not Relevant to UDCs. Keynes had dealt with the problem of the down-turn in business cycles and the resultant rise in unemployment. However, under developed countries face the problem of regular and disguised unemployment.  5. Keynesian Theory Ignores the Long Run Problems. Keynes sought solution to the short run macro-economic problems and went on to say that in the long run we are all dead. He thus ignored the long run problems of changes in the economic conditions.   Macroeconomics m.com semester 2  important question bank pdf m.com semester 2 Macroeconomics important question bank pdf macro economics m.com part 1 question papers with answers idol mcom sem 2 macro economics question paper with Answers mcom sem 2 macro economics question paper m.com question papers with answers pdf mumbai university mumbai university solved question papers download pdf m.com part 1 question papers with answers idol mumbai university question papers download pdf m.com question paper mumbai university mumbai university previous year question papers with solutions mumbai university old question papers mumbai university solved question papers download pdf macro economics If you want exam most important question bank pdf then you have to pay per subject 100/- rupees only .  Contact 8652719712 / 8779537141      Telegram Group Mumbai Univeersity :- https://t.me/mumbaiuniversityidol   Suraj Patel Education :- https://t.me/surajpateleducation     F.Y.J.C EXAM :- https://t.me/FYJCexam   S.Y.J.C EXAM :- https://t.me/SYJCexam   F.Y EXAM :- https://t.me/fyexam     S.Y EXAM :- https://t.me/syexam     T.Y EXAM :- https://t.me/tyexam     M.Com Part 1 EXAM :- https://t.me/McomPart1Exam   M.Com Part 2 EXAM :- https://t.me/McomPart2Exam M.A EXAM :- https://t.me/mastudentsexam  YouTube Channel  https://www.youtube.com/channel/UCv8JIY58xfWHUIXVu9wxNHw       Best Other MCQ   Webside www.mumbaiuniversityidol.com  All Subject MCQ Link