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D.N.Dwivedi, Macroeconomics- Theory and Policy, Tata McGraw-Hill Publishing Company Limited,2001,pp.543, Price Rs. 140/-.
Since Milton Friedman declared ` We are all Keynesians now', which became a truism, the world is a different place that we live in. Japan tried Keynesian policies to revive the economy from a recession that has lasted several years now but to no avail. This is because Japan tried to revive the economy through infrastructure spending but techniques of production have become so capital intensive that it did not put money into workers hands which could have revived effective demand. In Europe it was a different story. Some economies had considerable unemployment in recent times, but intelligent demand management was not even tried. But the main body of what has come to be known as Macro Economics remains and in fact has been attempted to be enriched through inclusion of new areas into its fold such as Monetary Economics as C. Rangarajan has suggested.
Even though this is meant to be a textbook mainly for undergraduate students some of the areas have been dealt with extremely competently and are worth mentioning in some detail. The author points out that in Keynes's opinion none of the classical economists had given a precise theory of interest. Keynes was the first economist to trace and reconstruct the classical theory of interest. We owe it to the author to have given us some clarity on this subject. According to the author what Keynes referred to as the classical theory of interest is indeed a combined view of Marshall, Cassel, Tausig and Walras. According to the Classical Theory of Interest then the rate of interest is determined by the funds demanded for investment and supply of savings. Or what is the same thing, the rate of interest is determined by the supply and demand for savings. Savings being the investable resources, The demand for investible funds increases as the rate of interest declines giving us a downward sloping demand curve for savings. And this is the investment schedule. The supply of savings is a positive function of the interest rate. The equilibrium rate of interest is determined by the intersection of the demand and supply curves. At this equiblibrium interest rate, households are willing to...