ABSTRACT
Keynes’s ideas introduced a major breakthrough in economic thought. He is the founder of macroeconomics as a branch of economic theory.
He was trained as a Marshallian economist: for him the adjusting variable in markets is quantity, not price. For the same reason, he used the partial equilibrium approach.
The main innovations Keynes introduced were the study of aggregate phenomena, the inclusion of psychological factors, the emphasis on the short run, the concept of involuntary unemployment, the possibility of equilibrium at positions below full employment, and the incorporation of full employment as a desirable goal of economic policy together with the instruments to attain it.
Keynesian analysis was policy oriented. His approach was a short run one, which is relevant for policy decisions.
Keynes warned of the limits of monetary policy to deal with unemployment. The recent experience with quantitative easing (QE) seems to corroborate Keynes’s forewarning. He was much more confident on the effectiveness of fiscal policy to cope with unemployment.
