Indicate whether each statement is true or false with respect to the Great Depre
ID: 2439036 • Letter: I
Question
Indicate whether each statement is true or false with respect to the Great Depression. Items (7 items) (Drag and drop into the appropriate area below) It took 4 years for potential GDP to return to its pre- Depression level Unemployment was as high as 25%. Recovery was MacroeconomicUnemployment Aggregate supply shocks were thefaster than afteropened the doorpolicy addressedrates were higher The Depression the Great Recession. rimary cause. for Keynesian the problem quick than during the Great Recession. olic Categories True False Drag and drop here Drag and drop hereExplanation / Answer
Ans
True
The depression opened the door for keynesian policy.
Unemployment was as high as 25%.
During great depression unemployment rate increased from 9% to 25% as well as wages decreased by average of 60%.The keynes policy was adopted as his idea was of goverenment interfence in economy by increasing goverenment spending or cutting taxes.Which will further increase aggregate demand and reuce unemployment.
False
Unemployment rates were higher than during the great depression
it took 4 years for potential GDP to return to its pre- depression,level.
aggregate supply shocks were the primary cause.
recovery was faster than after great depression.
macroeconomic policy addressed the problem quickly.
Unemployment rates were lower before than during the great depression.As it increased from 9% to 25%.After depression as well unemployment rates increased .According to keynes the primary cause of great depression was caused by a negative aggregate demand shock. During depression aggregate demand in US economy decreased.However main cause of great depression was crash of stock market which led to decrease in expected income and tight monetary policy.Such that higher tax rates and banking crisis led to depresion.So there was reduction in consumer spending and investment spending which caused aggregate demand to decrease.As a result price level and real GDP decreased.Moreover decline in real GDP was larger and lasted for longer duration.Thus overall economy took longer time period to recover than an average.It took seven years for real GDP to return to its pre recession level.As keynes ideology was adopted so fiscal policy addressed the problem quickly compared to macroecomic policy.Goverenment spending was increased and taxes reduced, jobs were created leading to reduction in umeployment.