Prior to the Great Depression, the dominant economic view held that
A) fiscal policy could effectively eliminate a recessionary gap and return the economy to its potential output.
B) economies should be able to reach full employment through a process of self-correction.
C) monetary policy should be used to move the economy back to its potential output because it was more immediate than fiscal policy.
D) any movement away from potential output was due to either an excess aggregate demand or an excess aggregate supply.

Question

Quizplus · Accepted Answer

The dominant economic view prior to the Great Depression was that economies should be able to reach full employment through a process of self-correction. This view was based on the idea of Say's Law, which asserts that supply creates its own demand. In other words, as long as goods and services are produced, they will be purchased, and therefore economies will naturally reach full employment without the need for government intervention. This view was turned on its head during the Great Depression when self-correction did not occur and government intervention became necessary to stabilize the economy.

Prior to the Great Depression, the Dominant Economic View Held