1. Keynes and the Classical theory In the 1930s, wage rates fell and employment did not increase as classical model predicted.

2. Keynes and the Classical theory In the 1930s, wage rates fell and employment did not increase as classical model predicted. Real wages do not fall as quickly and significantly to solve unemployment problem as classical model suggest.

3. Keynes and the Classical theory Money and financial Markets According to the classical model, increase in the money supply will increase aggregate demand for goods and services directly.

4. Keynes and the Classical theory Money and financial Markets According to the classical model, increase in the money supply will increase aggregate demand for goods and services directly. Keynes argued that classical economists overstated the impact of the money supply on the economy. He argued that

5. Keynes and the Classical theory He Money and financial Markets According to the classical model, increase in the money supply will increase aggregate demand for goods and services directly. Keynes argued that classical economists overstated the impact of the money supply on the economy. He argued that money is one of assets that households keep. A change in the money supply disturbs their equilibrium and therefore they have to re-allocate their assets, including money holdings.

6. Keynes and the Classical theory He Money and financial Markets According to the classical model, increase in the money supply will increase aggregate demand for goods and services directly. Keynes argued that classical economists overstated the impact of the money supply on the economy. He argued that money is one of assets that households keep. A change in the money supply disturbs their equilibrium and therefore they have to re-allocate their assets, including money holdings. This means demand for money must depend on the rate of interest.