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Keynesian Argument

The future events are the ones which Keynes considered "longterm" expectations (Keynes, 1936, p. 148). Keynes perceived "shortterm" expectations as that which a producer estimates he or she will get for a product by producing it today with the existing plant.

Keynes believed that longterm expectations are of greater significance in a modern economy than they were in past times. The reasoning was that when enterprises were mainly owned by those who undertook them, investment depended upon a sufficient supply of individuals of sanguine temperament and constructive impulses who embarked on business as a way of life, not really relying on a precise calculation of prospective profit (Keynes, 1936, p. 150). In a modern economy, where investors and owners more often than not are not the managers of enterprises, longterm expectations play a much more important role in the determination of investment decisions.

Within Keynes' conception of longterm and shortterm expectations, the behavior of each individual firm in deciding its daily output will be determined by its shortterm expectations (Keynes, 1936, p. 47). In the case of additions to capital equipment, however, these shortterm expectations will largely depend on the longterm expectations of other parties.

Keynes held that changes in expectations, whether longterm or shortterm, will produce full effect on employment only over a considerable period of time (Keynes, 1936, p. 47). In the case of shortterm expectations, this situation prevails because change in expectation are not, as a general rule, sufficiently violent or rapid, when they are for the worse, to cause the abandonment of work on all the productive processes which, in the light of the revised expectation, it was a mistake to have begun (Keynes, 1936, p. 48). Further, when changes in expectations are for the better, some time for preparation must elapse before employment can reach the level...

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Keynesian Argument. (1969, December 31). In LotsofEssays.com. Retrieved 03:31, December 21, 2014, from http://www.collegetermpapers.com/viewpaper/1303678322.html
 
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