What did Keynes argue about aggregate demand?
A)Aggregate demand is stable, because the economy returns to long-run equilibrium.
B)Aggregate demand is stable, because changes in consumption are mostly offset by changes in investment and vice versa.
C)Aggregate demand is unstable, because waves of pessimism and optimism create fluctuations in aggregate demand.
D)Aggregate demand is unstable, because seasonal variations create fluctuations in aggregate demand.

Question

Quizplus · Accepted Answer

Keynes argued that aggregate demand is unstable due to waves of pessimism and optimism among consumers and investors that create fluctuations. He believed in the need for government intervention to stabilize aggregate demand and prevent economic downturns. Options A and B are incorrect, as they suggest that aggregate demand is stable, which goes against Keynes's theory. Option D is also incorrect, as seasonal variations only represent a small portion of the fluctuations in aggregate demand.

What Did Keynes Argue About Aggregate Demand