Between 1929 and 1933,the U.S.economy went from a situation of full employment to one of 25 percent unemployment.Which of the following events would you have expected to observe over this relatively short period of time?
A)The overall price level remained unchanged.
B)The overall price level decreased.
C)The overall price level increased.
D)It is impossible to speculate on what happened to the overall level of prices from the information given.

Question

Quizplus · Accepted Answer

When there is a decrease in employment, there is also a decrease in demand for goods and services. This decrease in demand causes a decrease in prices, as there is less competition for goods in the market. Therefore, it is expected that the overall price level would decrease during a period of high unemployment like the one seen between 1929 and 1933.