Use the following graph to answer the following questions.The graph depicts an economy where aggregate demand and long-run aggregate supply (LRAS)have decreased,with no change in short-run aggregate supply (SRAS).

-During the Great Recession,real gross domestic product (GDP)decreased,yet the aggregate price level remained largely unchanged,as depicted in the graph.Unemployment increased to above-normal levels.Which of following best explains why this happened?
A) A significant decline in military spending following the end of a war led to a recession.
B) A sharp recession followed the United States abandoning the gold standard.
C) A decline in housing prices and stock prices,plus a financial crisis,caused a recession.
D) A sudden increase in oil prices caused inflation and a deep recession.
E) A stock market crash,large numbers of bank failures,an increase in tax rates,and a tight money supply caused a recession.

Question

Use the following graph to answer the following questions.The graph depicts an economy where aggregate demand and long-run aggregate supply (LRAS)have decreased,with no change in short-run aggregate supply (SRAS).
 
-During the Great Recession,real gross domestic product (GDP)decreased,yet the aggregate price level remained largely unchanged,as depicted in the graph.Unemployment increased to above-normal levels.Which of following best explains why this happened?
A) A significant decline in military spending following the end of a war led to a recession. 
B) A sharp recession followed the United States abandoning the gold standard. 
C) A decline in housing prices and stock prices,plus a financial crisis,caused a recession. 
D) A sudden increase in oil prices caused inflation and a deep recession. 
E) A stock market crash,large numbers of bank failures,an increase in tax rates,and a tight money supply caused a recession.

Quizplus · Accepted Answer

The graph shows a decrease in both aggregate demand and long-run aggregate supply, indicating a recession. The specific factors listed in choice C - a decline in housing prices and stock prices, plus a financial crisis - are consistent with the type of recession depicted in the graph. Additionally, the fact that the aggregate price level remained largely unchanged despite the decrease in real GDP suggests that there was not an inflationary shock like that in choice D. Choice A is not mentioned in the graph or explanation, choice B is not consistent with the time frame depicted in the graph, and choice E includes some factors (such as a tight money supply) that are not evident in the graph.

Use the Following Graph to Answer the Following Questions