Keynes argued that aggregate demand is
A)stable, because the economy returns to long-run equilibrium.
B)stable, because changes in consumption are mostly offset by changes in investment and vice versa.
C)unstable, because waves of pessimism and optimism create fluctuations in aggregate demand.
D)unstable, because of long and variable policy lags that worsen economic fluctuations.

Question

Quizplus · Accepted Answer

Keynes believed that aggregate demand is unstable because it is influenced by waves of pessimism and optimism, which create fluctuations in the economy. This is known as the business cycle, and it can result in periods of recession and expansion. Keynes argued that government intervention in the economy, such as fiscal and monetary policy, could help stabilize aggregate demand and reduce the severity of economic fluctuations.

Keynes Argued That Aggregate Demand Is