Question 1

When stock prices declined during the Great Depression, it caused aggregate demand to decrease because:

Accepted Answer

When stock prices declined during the Great Depression, households lost a significant portion of their wealth due to the decrease in value of their stock holdings. As a result, they reduced their spending, causing a decrease in aggregate demand.

Question 2

During the Great Depression, thousands of U.S. banks failed. As a result:

Accepted Answer

The failure of thousands of banks during the Great Depression led to a decrease in aggregate demand, as people lost their savings and businesses were unable to access credit to invest and expand. This contributed to the overall economic downturn and high levels of unemployment during that time period. Therefore, option C is the correct answer.

Question 3

Prior to the Great Depression, U.S. stock prices decreased dramatically. This would tend to cause:

Accepted Answer

A decrease in stock prices would lead to a decrease in household wealth and therefore a decrease in consumption spending, causing a decrease in aggregate demand.

Question 4

The primary cause of the Great Depression was a decrease in aggregate demand. Which of the following events would have caused such a decrease?

Accepted Answer

A large number of bank failures would cause a decrease in the money supply and confidence in the banking system, leading to a decrease in aggregate demand.

Question 5

Which of the following would have caused aggregate demand to decrease during the Great Depression?

Accepted Answer

A decrease in the money supply would cause a decrease in aggregate demand as it would reduce the amount of money available for spending and investing in the economy. This was a major factor in the Great Depression as the Federal Reserve contracted the money supply and tightened credit.

Question 6

The Great Depression is characterized by a decrease in aggregate demand. Of the following factors, which would have caused aggregate demand to decrease?

Accepted Answer

A decrease in expected future income would cause consumers to spend less, leading to a decrease in aggregate demand. Factors like an increase in the labor supply or an advance in technology could potentially increase aggregate supply, but they do not directly impact aggregate demand. An increase in government spending would actually increase aggregate demand. An increase in the money supply could potentially increase aggregate demand, but it would depend on other factors such as interest rates and consumer confidence.

Question 7

Among the beliefs held by classical economists, one is that:

Accepted Answer

The answer of Among the beliefs held by classical economists,...

Question 8

During the Great Depression, aggregate demand in the U.S. economy decreased. As a result, the price level _________ and real gross domestic product (GDP) _________.

Accepted Answer

During the Great Depression, the decrease in aggregate demand led to a decrease in both the price level and real GDP. Lower aggregate demand meant that businesses were selling fewer goods and services, resulting in a decrease in real GDP. As a result of lower demand, firms had less ability to raise prices, leading to a decrease in the overall price level.

Question 9

During the Great Depression, aggregate demand in the U.S. economy decreased. As a result, the unemployment rate _________ and the price level _________.

Accepted Answer

During the Great Depression, the decrease in aggregate demand led to a decline in economic activity and production. This resulted in higher unemployment as fewer jobs were available for workers. With a decrease in demand and excess supply, prices also decreased, leading to deflation. Therefore, the correct answer is E, which indicates that the unemployment rate increased and the price level decreased during the Great Depression.

Question 10

Keynesian economists believe that:

Accepted Answer

Keynesian economists believe that in the short run, shifts in aggregate demand have a greater impact on output and employment than changes in aggregate supply. Therefore, they argue that policymakers should focus on managing aggregate demand through fiscal and monetary policies to maintain full employment and stabilize the economy.

Question 11

Classical economists believe that:

Accepted Answer

Classical economists believe in the self-correcting mechanism of the market and that the market can adjust back to full employment on its own without the need for government intervention.

Question 12

When 9,000 banks failed during the Great Depression, it caused aggregate demand to decrease because:

Accepted Answer

When banks failed during the Great Depression, the government did not insure deposits, causing many people to lose their life savings. This led to a decrease in the money supply, as people did not have money to spend and banks were unable to lend. This decrease in the money supply led to a decrease in aggregate demand.

Question 13

When the government raised taxes at the beginning of the Great Depression, it caused aggregate demand to decrease because:

Accepted Answer

When the government raised taxes, it reduced the disposable income of households, which in turn caused a decrease in consumer spending. This decrease in consumer spending led to a decrease in aggregate demand, which worsened the economic conditions of the Great Depression.

Question 14

When the government pursued a "tight money" policy during the Great Depression, it caused aggregate demand to decrease because:

Accepted Answer

A "tight money" policy means the government is reducing the money supply and increasing interest rates, which makes borrowing more expensive and reduces the amount of money in circulation. This leads to decreased consumer spending and investment spending, as people have less money to spend and are less likely to take out loans for large purchases. This decrease in aggregate demand can worsen a recession or depression. None of the other choices accurately describe the effects of a tight money policy.

Question 15

As a result of several factors, aggregate demand decreased during the Great Depression. One factor would be:

Accepted Answer

A decrease in expected income would lead to a decrease in consumption spending, which is a component of aggregate demand. This decrease in aggregate demand would contribute to the economic downturn of the Great Depression. The other choices would typically lead to an increase in aggregate demand, which is not consistent with the historical context of the Great Depression.

Question 16

In regard to the macroeconomy, it is believed by classical economists that:

Accepted Answer

Classical economists believe that prices are flexible and will adjust to changes in supply and demand, which allows the economy to self-correct without the need for government intervention. They also believe in the importance of free markets and limited government intervention in the economy.

Question 17

During the Great Depression, aggregate demand in the U.S. economy decreased. As a result, the unemployment rate _________ and real gross domestic product (GDP) _________.

Accepted Answer

A decrease in aggregate demand leads to a decrease in real GDP and an increase in unemployment. Therefore, the correct answer is A, as the unemployment rate increased and real GDP decreased during the Great Depression.

Question 18

During the Great Depression, aggregate demand decreased. This would have been caused by:

Accepted Answer

During the Great Depression, there was a decrease in wealth due to a decrease in the stock market and widespread bank failures. As people's wealth decreased, they spent less, which caused a decrease in aggregate demand.

Question 19

When considering how the economy works, classical economists hold that:

Accepted Answer

Classical economists emphasize the importance of the long run when analyzing the economy. They argue that the economy will naturally tend towards full employment and equilibrium over time, and that short-term fluctuations are less significant than longer-term trends. This perspective contrasts with more Keynesian approaches, which prioritize short-term government intervention to stabilize the economy.

Question 20

When describing how the economy works, classical economists claim that:

Accepted Answer

Classical economists believe that savings is crucial to economic growth as it provides funds for investment which leads to increased production and economic activity. They also believe in the idea of the "invisible hand" where the market can self-correct and move towards full employment without the need for external intervention.

Quiz 14: The Great Recession, the Great Depression, and Great Macroeconomic Debates