Keynes disagreed with the classical model because he felt that
A) a modern economy has adequate levels of competition to ensure the flexibility of wages and prices.
B) supply creates its own demand.
C) in the long run, capitalism will be replaced by socialism.
D) one cannot be certain that changes in interest rates equate saving to investment.
E) the automatic mechanism in a capitalist society produces accelerating rates of inflation.

Question

Quizplus · Accepted Answer

Keynes disagreed with the classical model primarily because he believed that changes in interest rates do not necessarily equate saving to investment. He argued that, especially in times of economic downturn, lower interest rates might not stimulate investment as classical theory suggested, due to pessimistic expectations about the future. This is a fundamental aspect of Keynesian economics, which emphasizes the role of government intervention to manage economic cycles.

Keynes Disagreed with the Classical Model Because He Felt That