The essential of Keynes discussion of the trade cycle can be summed up as follows: 1. 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Investment depends upon two factors: (a) marginal efficiency of capital, and (b) the rate of interest. John Maynard Keynes, one of the most influential economists of the 20th century, never worked out a pure theory of trade cycles, though he made significant contributions to the trade cycle theory. This asymmetry is due to the inactivity of accelerator in the downturn. Keynes’ Theory of Trade Cycles: Keynes doesn’t develop a complete and pure theory of trade cycles. But he did not care to introduce this aspect of the theory of capital in his theory of the business cycles. Share Your PPT File, Schumpeter’s Innovation Theory of Trade Cycle. Keynes observed that the duration of contraction is related definitely to the life of capital assets and the carrying costs of inventories. The substance of Keynesian Theory of Trade Cycles is that an initial investment outlay will generate multiple amount of income and employment under the influence of the multiplier and acceleration effects. Periodicity means the period from depression to boom of the various trade cycles. Keynes did not formulate a separate theory of trade cycle, but he has given it as a by-product of his main theory of Income and employment propounded in the “General theory”. Periodicity means the period from depression to … But whether a fresh investment will be undertaken will depend upon the marginal efficiency of capital. Keynes’s Theory: The Keynesian theory of the trade cycle is an integral part of his theory of income, … THE following pages do not attempt to put forward any" new " theory of the Trade Cycle. Deflation - Meaning, Effects and Modes of Control, The Importance of Population Trends in Business, Floating or Flexible Exchange Rate System, Keynesian and Classical Economists Views about Disequilibrium. There is heavy economic activity everywhere in the primary, secondary and tertiary sectors of the economic system. John Maynard Keynes Is The Great British Economist Of The Twentieth Century Whose Hugely Influential Work The General Theory Of Employment, Interest And Money Is Undoubtedly The Century S Most Important Book On Economics Strongly Influencing Economic Theory And Practice, Particularly With Regard To The Role Of Government In Stimulating And Regulating A Nation S Economic Life. Part -1 Sunspot theory Under consumption Over investment Keynesian theory Samuelson accelerator theory. First, it is fluctuations in investment that cause changes in aggregate demand which bring about changes in economic activity (i.e., income, output, and employment). The marginal efficiency of capital is sandwiched between rising costs of production on the one side and falling prices of finished goods in the other hand. Hobson. It is effective demand which determines the level of income and employment. 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