2. Classical economists believed I. there could be temporary periods of unemploy

Question

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

2. (b) II only..

Explanation ...

Classical economists trusted the market very well, They believed that the markets will take care of everything in long run, this all have to wait till long run and rest all will be taken care of by itself.

3. 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 in 1929.

Explanation ....

A severe worlwide depression took place in the 1930s began in US and spread all over the world. This is called the Great Depression which started in 1929 and till almost 1939. It began with major fall in stock prices that began on Sept 4 1929 and spread world wide with the stock market crash on Oct 29 1929. It is also known as the "Black Tuesday"

4. c. an increase in employment, production and income

Explanation

AS per Keynes any increase in consumption, investment, government spending, spending on exports will shift the AD curve towards right. Therefore, an increase in employment, production and income will lead to more spending and as a result the AD curve will move rightwards.

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