Disagreed with the Classical notion that a market economy automatically moves it

Question

Disagreed with the Classical notion that a market economy automatically moves itself to a equilibrium. In particular, he disagreed with the Classical on two important points: first, Keynes argued that prices, wages and interest rates were especially downward; and second, that Say's Law was not true in the short run. Keynes argued that, in the short run, supply does not create demand, but rather it is that determines equilibrium income, output, and employment. Keynes argued that recessions are a result of insufficient The Classical model focused on the long run and aggregate supply while the Keynesian approach to explaining macroeconomic changes focused on the and Keynes found to be the largest component of aggregate demand, but felt that was the most volatile component of aggregate demand. He tried to make the case that fluctuations in aggregate spending could result in instability, and Keynes argued that government could use to help stabilize the macroeconomy.

Explanation / Answer

(1) John Maynard Keynes

(2) General

(3) Sticky

(4) Effective demand

(5) Aggregate(in turn Effective) demand

(6) Long run and

(7) Aggregate demand

(8) Consumption expenditure based on Marginal Propensity to consume(MPC)

(9) Investment based on Marginal Propensity to investment (MPI)

(10) Monetary Policy

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