Question

Discuss the role of interest, money and investment in Keynes. Do you think, capitalism will need public policy in order to overcome the the effects of virus in economics? Why? Why not?

Answer 1

Keyne s emphasized on the role of money market in the economy and rate of interest is determined in the money market where demand for and supply of money intersects and equilibrium rate of interest is determined. This equilibrium rate of interest in the economy determines the level of investment in the economy and both are negatively related. As rate of interest increases, the investment level in the economy falls and as rate of interest decreases, the level of investment in the economy increases.

Corona Virus has caused rescessionary gap in the economy because of the fall in the level of aggregate demand caused by decrease in the level of consumption and investment expenditure in the economy. To eliminate this gap in the economy, expansionary fiscal and monetary policy are needed to increase the level of aggregate demand in the economy and eliminate recessionary gap in the economy.

Thus, it can be stated that capitalism will need public policy in order to overcome the effects if virus in the economy.