ABSTRACT
Recall from Chapter 12 that John Maynard Keynes believed that the Great Depression had been caused by insufficient aggregate demand. Because he thought that prices and wages are inflexible in a downward direction, Keynes maintained that the classical economists' optimism that the economy would move autOmatically and quickly tO full employment was incorrect. To Keynes and his followers, an activist government must increase aggregate demand in order tO protect jobs and income. In other words, expansionary fiscal policy ini tiated by the federal government is the way tO stabilize the economy.
