According to the Keynesian view, the prolonged unemployment of the Great Depression
A) was surprising because Keynesians believed that wage rates would decline and direct the economy to full employment.
B) was surprising because Keynesians believed that lower interest rates would direct the economy to full employment.
C) resulted because the total expenditures on goods and services were less than the full-employment rate of output.
D) resulted because the federal government ran large budget deficits during the 1930s.

Question

Quizplus · Accepted Answer

According to Keynesian theory, a prolonged unemployment can only happen when the total expenditures on goods and services are less than the full-employment rate of output. Lowering interest rates, which was one of the policies suggested by Keynes, may stimulate spending, but it cannot guarantee full employment if the overall spending level is still insufficient. Similarly, Keynes did not believe that wage rates alone would direct the economy to full employment, as employers may not necessarily hire more workers if they cannot sell enough output to cover the cost of wages. Finally, while Keynes did recommend deficit spending during recessions, it is incorrect to say that the federal government's budget deficits were the cause of the Great Depression unemployment, as the deficits did not start until after the Depression began.

According to the Keynesian View, the Prolonged Unemployment of the Great