Question

In the Keynesian doctrine of effective demand, what is the main reason that high unemployment can coexist with high productive capacity in rich economies?

Options

• Lack of natural resources

• Excessive government spending

• Persistent deficiency of investment demand

• Constant budget deficits

Answer 1

Persistent deficiency of investment demand

Explanation: 

In advanced economies, the gap between income and consumption is not fully filled by new investment, so effective demand remains deficient, causing unemployment despite abundant capacity,this is the “poverty amidst plenty” situation.