Emergence of Macroeconomics

• Macroeconomics emerged as a separate branch after John Maynard Keynes published “The General Theory of Employment, Interest and Money” (1936).
• Earlier, the classical tradition believed that all willing workers get jobs and all factories work at full capacity.

• British economist, born in 1883.
• Educated at King’s College, Cambridge, United Kingdom, and later appointed its Dean.
• Actively involved in international diplomacy in the years following the First World War.
• In “The Economic Consequences of the Peace” (1919), he predicted the breakdown of the post‑war peace agreement.
• His book “The General Theory of Employment, Interest and Money” (1936) is regarded as one of the most influential economics books of the twentieth century.
• Also known as a shrewd foreign‑currency speculator.

• The Great Depression began in 1929 and continued in the subsequent years.
• Output and employment levels in the countries of Europe and North America fell sharply; later, other countries were also affected.

Economic Conditions

• Demand for goods in the market was very low.
• Many factories were lying idle, indicating unused capacity.
• Large numbers of workers were thrown out of jobs.

Situation in the USA (1929–1933)

• The unemployment rate in the USA rose from 3% to 25% between 1929 and 1933.
• Over the same period, aggregate output in the USA fell by about 33%.

• The Great Depression showed that long‑lasting unemployment and under‑utilised capacity are possible in an economy.
• Keynes explained this by studying the economy as a whole and the interdependence of different sectors, leading to the birth of macroeconomics.

• Macroeconomics emerged as a separate branch of economics after John Maynard Keynes published The General Theory of Employment, Interest and Money in 1936.
• Before Keynes, classical economists believed that all willing workers would find jobs and that factories would operate at full capacity.
• The Great Depression (1929–1933) caused a sharp fall in output and employment, especially in Europe and North America.
• During the Depression, demand for goods was very low, many factories remained idle, and large numbers of workers became unemployed.
• Keynes showed that economies can experience prolonged unemployment and unused productive capacity, leading to the development of macroeconomics to study the economy as a whole.