Which of the following events acted as an inspiration to Keynes for his writings, as a result of which the subject of macroeconomics was born?

The Great Depression

The correct answer is Option 1: The Great Depression

Macroeconomics emerged as a separate subject in the 1930s due to Keynes. The Great Depression, which dealt a blow to the economies of developed countries, had provided Keynes with the inspiration for his writings. Observing widespread unemployment and economic stagnation, Keynes challenged the classical view that markets automatically return to full employment. His ideas were presented in his famous book, The General Theory of Employment, Interest and Money (1936), where he argued that government intervention and increased public spending are necessary during economic downturns.

Note: Great Recession is a recent phenomenon which lasted from December 2007 to June 2009.

NCERT : "...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. It affected other countries of the world as well. Demand for goods in the market was low, many factories were lying idle, workers were thrown out of jobs. In USA, from 1929 to 1933, unemployment rate rose from 3 per cent to 25 per cent (unemployment rate may be defined as the number of people who are not working and are looking for jobs divided by the total number of people who are working or looking for jobs). Over the same period aggregate output in USA fell by about 33 per cent. 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. Unlike his predecessors, his approach was to examine the working of the economy in its entirety and examine the interdependence of the different sectors. The subject of macroeconomics was born."

"Macroeconomics deals with the aggregate economic variables of an economy. It also takes into account various interlinkages which may exist between the different sectors of an economy. This is what distinguishes it from microeconomics; which mostly examines the functioning of the particular sectors of the economy, assuming that the rest of the economy remains the same. Macroeconomics emerged as a separate subject in the 1930s due to Keynes. The Great Depression, which dealt a blow to the economies of developed countries, had provided Keynes with the inspiration for his writings. In this book we shall mostly deal with the working of a capitalist economy. Hence it may not be entirely able to capture the functioning of a developing country. Macroeconomics sees an economy as a combination of four sectors, namely households, firms, government and external sector."