Keynes's insight during the Great Depression was that
A) investment spending was too great to support high employment.
B) consumption spending is detrimental to the economy.
C) the economy can be in equilibrium and also have high unemployment.
D) the unemployment rate is not a good indicator of the true state of the economy.

Question

Quizplus · Accepted Answer

Keynes's insight during the Great Depression was that the economy can be in equilibrium and also have high unemployment. He argued that when total spending in an economy falls, firms respond by reducing production and laying off workers, which in turn reduces overall spending further, creating a vicious cycle. He believed that government intervention through increased spending and monetary policies could help to break this cycle and restore the economy to full employment. This idea is known as Keynesian economics.

Keynes's Insight During the Great Depression Was That