Read the following chain of events:
Step 1: The dominant thinking was that all labourers ready to work will find employment.
Step 2: ________
Step 3: The fact that the economy may have long lasting unemployment had to be theorised about and explained.
Step 4: Keynes published The General Theory of Employment, Interest and Money in 1936.
Which of the following fills Step 2?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Output and employment fell by huge amounts in Europe and North America from 1929
The chain runs from the classical belief, to the Great Depression of 1929, to the need to explain long-lasting unemployment, to Keynes’ book of 1936.
Step 1 The classical belief in full employment — held before Keynes.
Step 2 Output and employment fell by huge amounts in Europe and North America from 1929 — this event broke the belief.
Step 3 Long-lasting unemployment had to be explained — a result of the Depression.
Step 4 Keynes’ General Theory (1936) — his attempt in this direction.
Smith’s book (1776), the Physiocrats and Keynes’ 1919 book all come before or outside this chain.
NCERT (2026-27): “1.1 Emergence of Macroeconomics … The dominant thinking in economics before Keynes was that all the labourers who are ready to work will find employment and all the factories will be working at their full capacity. This school of thought is known as the classical tradition.” “However, the Great Depression of 1929 and the subsequent years saw the output and employment levels in the countries of Europe and North America fall by huge amounts. … These events made economists think about the functioning of the economy in a new way. The fact that the economy may have long lasting unemployment had to be theorised about and explained. Keynes’ book was an attempt in this direction. …” |