1. Which of the following is true about the Great Depression? a. Following the G

Question

1. Which of the following is true about the Great Depression?

a. Following the Great Depression of 1929, the economy did not regain its potential output until the early 1940s when the pressures of WWII sharply increased aggregate demand

b. Expansionary monetary and fiscal policies successfully moved the economy from the Great Depression of 1929 within three to five years

c. The Great Depression of 1929 was considered to be a normal stage of business cycles

d. The Great Depression could be explained by classical economic theory.

2. Classical economists believed
I. there could be temporary periods of unemployment.
II. emphasis should be placed on the long run, and in the long run all would be set right
because of the smooth functioning of the price system.
III. the Great Depression would be a short-run aberration.

a. I and II only

b. II only

c. I only

d. I, II, and III

3. Which of the following statements is true about the Great Depression?

a. The fall in aggregate demand at the start of the Great Depression began with the collapse consumption because of the decrease in incomes, following the stock market crash of 1929.

b. The fall in the short-run aggregate supply at the start of the Great Depression began with the collapse in investment

c. The fall in the short-run aggregate supply at the start of the Great Depression began with the collapse in exports because of the passage of Smoot-Hawley Tariff Act of 1930 which raised tariffs on imported goods

d. The fall in aggregate demand at the start of the Great Depression began with the collapse in investment.

4. Keynes believed that wages and prices were sticky. Therefore, a rightward shift of the aggregate demand curve would cause

a. an increase in the unemployment level

b. a change in the long-run aggregate supply curve

c. an increase in employment, production, and income

d. a decrease in the level of income

Explanation / Answer

First question is answered below

1. Correct option: a. Following the Great Depression of 1929, the economy did not regain its potential output until the early 1940s when the pressures of WWII sharply increased aggregate demand

Reason: The 1929 Great Depression put an adverse effect on the economy for around 9 years. Despite several attempts to push the economy up, the ordeal ended with coming of WW II when AD started to push up prices, thereby ending the recession.

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