Keynes argued that
A)irrational waves of pessimism would cause a decrease in aggregate demand and increase unemployment.
B)irrational waves of optimism would cause a reduction in aggregate demand and decrease unemployment.
C)changes in business and consumer expectations generally stabilize the economy.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

Keynes believed that irrational waves of pessimism can cause a decrease in aggregate demand as consumers and businesses become more cautious with their spending, leading to a decrease in economic activity and increased unemployment. On the other hand, irrational waves of optimism may lead to overinvestment and a subsequent reduction in aggregate demand, which could also result in decreased employment. Therefore, option A is the most accurate response. Option C is incorrect as Keynes did not believe that changes in business and consumer expectations generally stabilize the economy.

Keynes Argued That