How did the Keynesian perspective address the issue of the Great Depression of the late 1920s and early 1930s? How did it differ from earlier economic explanations?
What does âwage and price stickinessâ mean? What is its significance in Keynesian analysis?
The Keynesian perspective on the Great Depression argued that it was caused by a lack of aggregate demand. This means that there was not enough money in the economy to support the level of economic activity that was needed. This lack of aggregate demand was caused by a number of factors, including the stock market crash of 1929, the bank failures of the early 1930s, and the Smoot-Hawley Tariff Act of 1930.
Keynesian economists argued that the government could play a role in addressing the Great Depression by increasing aggregate demand. This could be done through fiscal policy, such as tax cuts or spending increases, or through monetary policy, such as lowering interest rates.
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