ABSTRACT
The theory of employment in this chapter outlines an insensitive-price theory of economic adjustment and a monetary theory of aggregate demand. The first theory explains the changes in aggregate demand on both prices and employment. The second theory explains the relation between the demand for money and the stock of money outstanding. According to an extreme application of this theory, the level of employment in a perfectly rigid-price economy would be determined by the level of production and real income at which the demand for money was just equal to the stock of money outstanding. Finally, the chapter concludes that money is crucial to the level of employment is not surprising, if one considers that the whole process of production and income creation is carried out through the medium of money, and that any change in economic behavior is likely to be expressed in the holding or use of money balances.
