Answer to Question #330697 in Macroeconomics for Rudranshi Rathore

Question

Why did the classical economists fail to explain the Great Depression? What is the Keynesian explanation for the same? Answer it in about 250 words.

Answer 1

The Great Depression discredited classical economics by casting a doubt on how the market was able to regulate the economy.

The Great Depression inspired Keynes to think differently about the nature of the economy. From these theories, he established real-world applications that could have implications for a society in economic crisis. Keynes rejected the idea that the economy would return to a natural state of equilibrium.