Figure 17-1 -Refer to Figure 17-1. During the Great Depression, aggregate demand declined sharply. Suppose the economy moved to a short-run equilibrium at point k. Over time, the economy moved to point j. What could have caused the economy to move to point j? A) Falling output prices caused the aggregate supply to shift from SRAS₁ to SRAS₂. B) Falling nominal wages caused the aggregate supply to shift from SRAS₁ to SRAS₂. C) Expansionary fiscal policies caused the aggregate supply to shift from SRAS₁ to SRAS₂. D) A decline in the demand for U.S. goods by foreign countries aggregate supply to shift from SRAS₁ to SRAS₂.

Question

Quizplus · Accepted Answer

The economy moved from point k to j due to falling nominal wages, which caused the short-run aggregate supply curve to shift from SRAS₁ to SRAS₂. This shift led to a decrease in the price level and an increase in the level of output.

Figure 17-1 -Refer to Figure 17-1. During the Great Depression, Aggregate Demand