Post-Keynesian economics

Abstract

Post-Keynesian Economics (PKE) has developed a distinct growth theory and distinguishes between wage-led and profit-led demand regimes. It argues that: financial markets are prone to instability and will, if left on their own, lead to boom-bust cycles; money is created by banks as a side effect of their lending decisions; involuntary unemployment is a normal feature of labour markets; and wage cuts and structural reforms cannot cure unemployment. This chapter explains these building blocks and core theoretical arguments of PKE, after briefly touching upon its historical development. Modern mainstream economics is based on methodological individualism: the individual is the basic unit of analysis. At the core of PK macroeconomics is the principle of effective demand: the idea that most of the time our economies are demand-constrained so that the level of aggregate expenditures determines the level of output in an economy.

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