Question

Keynes explained that recessions and depressions occur because of a. excess aggregate demand. b. inadequate aggregate demand. c. excess aggregate supply. d. inadequate aggregate supply.

Answer 1

Answer: Option (b) is correct.

Explanation:

According to Keynes, the main cause of recessions and depressions is inadequate aggregate demand. when the total demand for goods and services falls as a result sales of the firms decreases. Lower demand for the products induce firms to cut down their production which results in unemployment. So, unemployment increases and lower profits further depressed demand for the goods and services.