The economy recovers quickly from most recessions,but the increase in adverse selection and moral hazard problems in the credit markets caused by ________ led to the severe economic contraction known as The Great Depression.

Question

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Debt deflation refers to a situation where falling asset prices lead to a chain reaction of defaults and bankruptcies, ultimately leading to a downward spiral in economic activity. This phenomenon was a key culprit behind the severity and persistence of the Great Depression, as it intensified adverse selection and moral hazard problems in credit markets, leading to tighter lending standards, reduced investment, and widespread job losses. The other options (B, C, and D) are unlikely to have played a significant role in triggering or perpetuating the Great Depression.

The Economy Recovers Quickly from Most Recessions,but the Increase in Adverse