A capitalist depression is that period where the number of those employed drastically reduces simultaneously with the productive capacity associated physical capital.
Wage and marginal productivity is a theory dictating that wages are payable at that level that is similar to the marginal revenue.
Hunt (1979) notes that Keynes first departure was his insistence that the level of total income was extremely significant in influencing the amount of savings than the interest rates. The second departure was his argument that savings and investments were not determining factors of the interest rates.
The consumption function is used in depicting the existing relationship between savings and consumption at the available income level. It formed a significant basis of the income.
The interest rate, as asserted by Keynes, is determined by both money demand, as well as, its supply at any point in time. On the other hand, the demand and supply of money is determined by the 3 motives encompassing the transactions, precautionary and lastly the speculative motive.
Liquidity preference may be said to be money demanded or otherwise the form in which one prefers to exude control over his future consumption i.e. in money or its equivalent.
Solving the scenario would require the maintenance of a full employment level through the equalization of savings and investments and on the other hand demand and supply.
The role of the government is imbedded in controlling the economy through the application of monetary policies. This consequently alters the prevailing interest rates thus impacting on the existing depression (Hunt, 1979).
REFERENCE
Hunt, E. (1979). History of economic thought - a critical perspective. Belmont: Wadsworth Publishing Co. Inc.
