To explain the Great Depression, a model with perfectly flexible wages and prices would have to assume that
A) the people counted as unemployed during the period did not want to work, so that their potential contribution would not be part of potential GDP.
B) none of the capacity idled by the downturn was productive, so that its potential contribution would not be part of potential GDP.
C) some sort of disturbance caused potential GDP to fall dramatically over a period of one or two years.
D) all of the above.
E) none of the above.
Correct Answer:
Verified
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