Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383



Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

According to Keynes, can the private sector always remove the economy from a recessionary gap? Explain your answer.

To determine

Recessionary gap and the private sector.


According to the classical economists, the economy is always self regulating and does not need any intervention of the government to control its activities other than providing the military support. Thus, they demanded the Laissez Faire economy where the economic transactions of the economy are free from the government regulations, tariffs, and interventions. Thus, the Classical economists always believed that the private sector can always move out the economy from the recessionary gap and bring about the equilibrium.

However, according to the Keynesian economists, the laissez Faire economy fails to self regulate when there is only private sector because under the recession period, the people will reduce their consumption and this will lead to very lower levels of the aggregate demand in the economy...

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