ABSTRACT
This chapter discusses the antecedents of the modern reappraisal of Keynesian theory. It focuses on the possible types of equilibria largely in terms of J. Muellbauer and R. Portes’ ‘double wedge’ diagram approach. The chapter discusses comparative statics where discrete switching between regimes is assumed through the use of fiscal policy. It shows that assumptions made regarding the labour market affect the direction of use of fiscal policy. A more promising paradigm for the study of unemployment has developed however from a reappraisal of J. M. Keynes’ theory, which provides new foundations for macroeconomic analysis. It also shows that an important piece of information is that of the labour supply responses of households. A fundamental feature of the general disequilibrium class of models is the assumption of voluntary exchange so that on each market the quantity traded is the minimum of effective demand and effective supply.
