Keynesian formula

Keynesian Formula

Keynesian formula

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The Keynesian formula was developed by the British economist John Maynard Keynes. Keynes was an influential economist who was greatly influenced by the events of the Great Depression in the 1930s. He was a great influence upon government economic policy after the Second World War and was involved in the establishment of The World Bank and the International Monetary Fund at the Bretton Woods Conference in 1944. Keynes explained that the level of output and employment in the economy was determined by aggregate demand or effective demand. In a reversal of Say's Law, Keynes in essence argued that "man creates his own supply," up to the limit set by full employment. Monetarists have always been critical of Keynes' work.

Composition of the Keynesian Formula

In scientific notation, the Keynesian Formula consists of the following make-up:

<math>C + I + G + X - M = Y (GDP)</math>

which means:

Consumption + Investment + Government Spending + ExportsImports = Gross Domestic Product

Consumption

In Keynesian economics aggregate consumption is total personal consumption expenditure, i.e., the purchase of currently produced goods and services out of income, out of savings (net worth), or from borrowed funds. It refers to that part of disposable income (income after taxes paid and payments received) that does not go to saving.

Investment

Investment is a term with several closely-related meanings in business management, finance and economics, related to saving...
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