Suppose that during the Great Depression long-run aggregate supply shifted left.To be consistent with what happened to the price level and output,what would have had to happen to aggregate demand?
A) It would have to shifted left by less than aggregate supply.
B) It would have to shifted left by more than aggregate supply.
C) It would have to shifted right by less than aggregate supply.
D) It would have to shifted right by more than aggregate supply.

Question

Quizplus · Accepted Answer

When long-run aggregate supply shifts left, there is a decrease in potential output. If aggregate demand also shifts left by the same amount, then the price level would remain constant but output would decrease, which is not consistent with what happened during the Great Depression. Therefore, aggregate demand would have to shift left by more than aggregate supply in order to decrease both output and the price level, as was observed during the Great Depression.

Suppose That During the Great Depression Long-Run Aggregate Supply Shifted