The Monetary Theory of Real Activity

Geoff Tily

Chapter 8 in Keynes’s General Theory, the Rate of Interest and ‘Keynesian’ Economics, 2007, pp 226-248 from Palgrave Macmillan

Abstract: Abstract Keynes’s theory of real activity provides an explanation for both the level of activity and the economic cycle. The theory is a monetary theory from three perspectives. First, the most important determinant of the level of activity is the monetary rate of interest. Second, the level of activity determined by the rate of interest and expectations is facilitated by bank money. Third, an unsustainable level of activity is reflected in an accumulation of debt and asset price inflations, and is ultimately restrained by the prospect and then reality of financial collapse. As has been noted in earlier chapters, this latter argument (in Sections 8.4 and 8.5) goes beyond Keynes’s argument in the General Theory.

Keywords: Aggregate Demand; Real Activity; Economic Cycle; Debt Financing; Investment Demand (search for similar items in EconPapers)
Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-80137-0_8

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DOI: 10.1057/9780230801370_8

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