John Maynard Keynes created the aggregate expenditure model to explain what economic event?

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BlackTom AI · Accepted Answer

The question asks which economic event Keynes used the aggregate expenditure model to explain.
Option 1: 'stagflation of the 1970s' This phenomenon—a combination of high inflation and high unemployment—emerged in the 1970s due to supply shocks and monetary factors, not as the explanation framed by the aggregate expenditure model.
Option 2: 'the bank panic of 1907' This event is tied to financial instability and led to reforms like the Federal Reserve system; the aggregate expenditure model was not developed to explain this early-20th-century banking panic.
Option 3: 'the Great Depression of the 1930s' The aggregate expenditure (or spending) model was developed by John Maynard Keynes precisely to explain the sustained shortfalls in aggregate demand that led to the widespread unemployment and output collapse during the Great Depression, making this option the historically associated event.
Option 4: 'the Great Recession of 2007 to 2009' This modern financial crisis prompted Keynesian-style analyses, but the formal aggregate expenditure model originated earlier, as a tool to understand the Depression era and its demand-driven unemployment, rather than the later recession.
In summary, the interplay between total spending, income, and output in Keynesian analysis was designed to account for the severe downturn of the 1930s, where insufficient aggregate demand played a central role, whereas the other events are associated with different mechanisms or time periods.

ECON 2002.01 AU2025 (21333) Midterm Exam 3 - Requires Respondus LockDown Browser

John Maynard Keynes created the aggregate expenditure model to explain what economic event?

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