ABSTRACT
Introduction In Part I we have briefly reviewed a neo-classical and Keynesian type model of the closed macroeconomy in the short period. Both these models were macroeconomic models of the general equilibrium type. That is to say, the economy was pictured in terms of a set of relationships that mutually determined the dependent economic variables of our analysis, such as the level of income, the rate of interest, the general price level and the level of employment. The neo-classical analysis exemplifies a dichotomy between the real and monetary sectors of the economy and emphasizes the importance of the real stock of money in influencing the level of economic activity. The Keynesian system of thought on the other hand rests fundamentally on the principle of effective demand, which is introduced as the result of some reconstruction of neo-classical ideas.
