According to John Maynard Keynes,
A) Say's Law is always correct.
B) a free market economy automatically finds equilibrium at full employment.
C) prices and wages move up and down freely.
D) effective demand determines real GDP.
E) supply creates its own demand.

Question

Quizplus · Accepted Answer

According to Keynes, effective demand, or the total demand for goods and services in an economy, determines the level of real GDP. This is in contrast to Say's Law, which states that supply creates its own demand, and the idea that a free market economy will automatically find equilibrium at full employment. Keynes believed that in certain situations, particularly during economic recessions, markets can fail to generate sufficient demand, leading to unemployment and underutilization of resources. Therefore, he advocated for government intervention to stimulate demand and increase economic activity.