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

Question

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

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

b. 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

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

2. According to the monetarists, after an initial increase in aggregate demand,

a. short-run aggregate supply curve will tend to shift leftward, reflecting the effect of higher wages adjusting in the long run.

b. aggregate demand curve will tend to shift rightward, reflecting the effect of income adjusting in the long run.

c. aggregate demand curve will tend to shift lower, reflecting the effect of price level adjusting in the long run.

3. New classical economics

a. differs from classical economics in that the latter focuses on the determination of long-run aggregate supply while the former focus on the determination of short-run aggregate supply.

b. is similar to classical economics in that both theories incorporate expectations in their analysis of the economy in the long-run.

c. is similar to classical economics in that both theories focus on the determination of long-run aggregate supply and the economy’s ability to reach this level of output quickly.

4. Which of the following policies would supply-side economists favor?

a. Lowering taxes to increase work effort and lowering interest rates to stimulate investment

b. Investment tax credits and increasing government spending on applied research to increase productivity

c. Lowering taxes to increase work effort and investment tax credits to stimulate investments

Explanation / Answer

1. The right answer is option c. The fall in aggregate demand at the start of the Great Depression began with the collapse in investment.

Explanation: There was investment boom in the US in 1920s. This resulted in the expanded stock of capital with the firms. So when firms had the desired level of capital, they cut back investment. The stock market crash in 1929 hurt investors' sentiment badly and had a negative effect on investment. Fall in investment resulted in a decrease in aggregate demand.

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.