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What are some of the most compelling evidence for the Keynesian interpretation of the Great Depression...

What are some of the most compelling evidence for the Keynesian interpretation of the Great Depression and why?

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Expert Solution

According to Keynesian explanations of the great depression. The fall in aggregate demand was main cause of great depression. Decline in demand was caused by the the fall in the the investment expenditure. Further, wages and prices were downward sticky.

The various empirical studies confirm that the major cause of great depression was the fall in aggregate demand. Hence government made massive expenditure to increase the aggregate demand in the economy. Profit expectations are very low during the depression, therefore private investor do not make investment in the economic activities. Thus,there is deficient demand in the economy. Therefore government has to make expenditure to drive up the aggregate demand.

There are ample evidences of Keynesian explanations of recession or great depression. The both fall in the the investment expenditures and downward sticky wages were the main causes of great depression.

Rahul Sunny answered 1 year ago
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