Marshallian Contribution to Keynesian Argument I cut out the parts of the paper that Hei

Expectations, as they are perceived in economic theory, are attitudes, beliefs, or states of mind about the nature of future events. Expectations affect economic behavior, and are, thus, a part of the psychology of economic behavior. Expectations pose difficulties for economists, because they cannot be directly observed. In economics, expectations may apply to virtually anythingprices, interest rates, demand, profits, and so forth. Expectations are held by investors, producers, and consumers. Thus, they are capable of affecting most economic decisions.

Marshall considered expectations in the formulation of economic theory. He did not, however, accord as prominent a role to expectations, as did his pupil Keynes in his development of economic theory. Keynes challenged many of the theories of classical economics, and a separate branch of economic thought eventually developed around his ideas. In the 1990s, Keynes is probably most often thought of as a proponent of an active role for government in the management of the economy. Keynes, however, cemented the role of psychology in economic behavior. Expectations play a major role in many of his theories.

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tion of prospective profit (Keynes, 1936, p. 150). In a modern economy, where investors and owners more often than not are not the managers of enterprises, longterm expectations play a much more important role in the determination of investment decisions. Within Keynes' conception of longterm and shortterm expectations, the behavior of each individual firm in deciding its daily output will be determined by its shortterm expectations (Keynes, 1936, p. 47). In the case of additions to capital equipment, however, these shortterm expectations will largely depend on the longterm expectations of other parties. Keynes held that changes in expectations, whether longterm or shortterm, will produce full effect on employment only over a considerable period of time (Keynes, 1936, p. 47). In the case of shortterm expectations, this situation prevails because change in expectation are not, as a general rule, sufficiently violent or rapid, when they are for the worse, to cause the abandonment of work on all the productive processes which, in the light of the revised expectation, it was a mistake to have begun (Keynes, 1936, p. 48). Further, when changes in expectations are for the better, some time for preparation mu
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