Tuesday 13 March 2012

KEYNES' APPROACH TO NATIONAL INCOME/NEO-CLASSICAL APPROACH

  The earlier definitions of national income do not throw much light on the factors which determine the level of income and employment at a particular time in an economy.Therfore,Lord Keynes made a departure from the earlier thinking.In his famous book,'The Genral Theories" Keyne adopted an approach which helped the aggregate analysis of income and employment.In his own words,aggregate income of an economic system lies somewhere between the value of gross national product and the net national product.Gross national product refers to the money value of final goods and services at a particular time.In his approach to national income,Keynes takes into account depreciation and obsolescence charges to arrive at national income.Moreover,according to keynes,net income equals A-U-V.

   Here A is the money value of all final goods and services produced during a given period of time in an economy.User cost,U refersto the loss of value resulting from using equipment by the entrepreneur.Supplementary cost,S refers to the other types of depreciation not included in user cost.In simple words,supplementary costs refer to depriciation in the value of capital which is beyond the power of the entrepreneur to check.Thus,from the above anlysis we can conclude that keynes had used income into two sense viz;(A-U) and (A-U-V).

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