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The Role and Importance of Liquidity Preference, Marginal Efficiency of Capital, and Marginal Propensity to Consume in Keynes's General Theory

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  • Usman Ghani

    (Doctoral School of Regional and Economic Sciences (English), Széchenyi István University (University of Gyor), Hungary.)

  • Md Kamal Hossain

    (Doctoral School of Regional and Economic Sciences (English), Széchenyi István University (University of Gyor), Hungary.)

Abstract

This article builds an understanding of Keynes’ General Theory as an advancement upon the Classical theory of economics with the introduction of new postulates including analysis of the propensity to consume, marginal efficiency of capital and the concept of the rate of interest. Based upon Keynesian General Theory, the key concepts, and variables of Liquidity Preference, Marginal Efficiency of Capital, and Marginal Propensity to Consume are familiarized and elaborated in terms of their role and importance in theory. Different references have been cited to support the interpretations as originally presented in Keynes’s General Theory. Literature has widely discussed the vital postulates of Keynes on the principle of effective demand, the consumption function, multiplier and interest rate, interest rate and investment. These postulates take account of the subjected variables and elaborate on the importance of these in Keynes General theory and models. Furthermore, the criticism of General theory is discussed, and conclusions are drawn at the end of the article.

Suggested Citation

  • Usman Ghani & Md Kamal Hossain, 2023. "The Role and Importance of Liquidity Preference, Marginal Efficiency of Capital, and Marginal Propensity to Consume in Keynes's General Theory," International Journal of Science and Business, IJSAB International, vol. 20(1), pages 58-70.
    • Handle: RePEc:aif:journl:v:20:y:2023:i:1:p:58-70
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    References listed on IDEAS

    as
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    2. J. M. Keynes, 1997. "The General Theory of Employment," Voprosy Ekonomiki, NP Voprosy Ekonomiki, vol. 5.
    3. L. Randall Wray, 1995. "Keynesian Monetary Theory: Liquidity Preference or Black Box Horizontalism?," Journal of Economic Issues, Taylor & Francis Journals, vol. 29(1), pages 273-282, March.
    4. Dennis H. Robertson, 1936. "Some Notes on Mr. Keynes' General Theory of Employment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 51(1), pages 168-191.
    5. J. Tobin, 1958. "Liquidity Preference as Behavior Towards Risk," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 25(2), pages 65-86.
    6. Raul Rojas, 2017. "The Keynesian Model in the General Theory: A Tutorial," Papers 1708.07509, arXiv.org.
    7. P. T. Ellsworth, 1936. "Mr. Keynes on the Rate of Interest and the Marginal Efficiency of Capital," Journal of Political Economy, University of Chicago Press, vol. 44(6), pages 767-767.
    8. Barens, Ingo, 2011. ""Animal spirits" in John Maynard Keynes's general theory of employment, interest and money: Some short and sceptical remarks," Darmstadt Discussion Papers in Economics 201, Darmstadt University of Technology, Department of Law and Economics.
    9. John Harvey, 2010. "Keynes’ Business Cycle: Animal Spirits and Crisis," Working Papers 201003, Texas Christian University, Department of Economics.
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