Answer :
Option B is correct, Keynes recessions and depressions occur because of inadequate aggregate demand.
The aggregate demand curve is plotted with actual output on the horizontal axis and the fee degree on the vertical axis. at the same time as it is theorized to be downward sloping, the Sonnenschein–Mantel–Debreu results display that the slope of the curve cannot be mathematically derived from assumptions approximately man or woman rational behavior. instead, the downward-sloping combination demand curve is derived with the help of 3 macroeconomic assumptions approximately the functioning of markets: Pigou's wealth effect, Keynes' hobby fee effect, and the Mundell–Fleming exchange-fee impact. The Pigou impact states that a better fee stage implies a decrease in actual wealth and consequently lower consumer spending, giving a lower quantity of products demanded inside the aggregate.
The Keynes effect states that a higher price level implies a decrease in actual money delivery and therefore better hobby prices because of financial market equilibrium, in turn ensuing in lower investment spending on new physical capital and therefore a decreased amount of goods being demanded within the aggregate.
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