Practice question · Multiple choice
Friedman and Keynes both explain the Depression, but their accounts imply different remedies. What explains the disagreement between them?
Hints
- Ask what each thinks the FIRST failure was.
- Each diagnosis names a different institution that should have acted.
Show the answer
B. On whether the cause was monetary contraction or failed demand
Why
The disagreement is causal and therefore practical. Monetary failure implies a central bank remedy; demand failure implies fiscal action, because rates near zero cannot fall further.
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