Prior to the Great Depression, classical economists believed that a recessionary downturn would be reversed by:

Question

Quizplus · Accepted Answer

Classical economists believed in the theory of Say's Law, which stated that supply creates its own demand. They believed that in a recession, prices and wages would naturally adjust downward, which would lead to increased demand for goods and eventually lead to economic recovery. Therefore, they believed that lower wages and prices would reverse a downturn, rather than higher wages and prices, as stated in option A. Option C is incorrect because the Federal Reserve System did not have an expansionary monetary policy during the Great Depression, despite classical economists advocating for it. Option D is also incorrect because classical economists did not believe in government intervention in the economy.

Prior to the Great Depression, Classical Economists Believed That a Recessionary