All errors and opinions are my own. 2  As quoted in Skidelsky (2009, p. 88). BIS Review 21/2010  1  described by classical general equilibrium theory. In particular, it explains why a state of depressed expectations can persist, and can lead to a protracted recession, or even to a depression. According to Keynes, the “state of confidence” is constantly in flux.
When it is high, business thrives; when it is depressed, on the other hand, the economy contracts, and can even end up in a permanent state of under-utilisation of resources. Keynes’ analysis of the need for and role of government intervention is predicated on the state of uncertainty prevailing in the economy. The main contribution that economic policies can make is to reduce uncertainty.