Which one of the following statements is TRUE?
A) The actual behavior of prices and real GDP during the decade of the 1930s is consistent with the classical model.
B) The actual behavior of prices and real GDP during the decade of the 1930s is consistent with the Keynesian model.
C) The actual behavior of prices and real GDP during the decade of the 1930s is consistent with the idea that increases in aggregate demand will increase the price level but will leave real GDP unchanged.
D) The actual behavior of prices and real GDP during the decade of the 1930s is consistent with a vertical short-run aggregate supply curve.

Question

Quizplus · Accepted Answer

The actual behavior of prices and real GDP during the decade of the 1930s, including the Great Depression, is consistent with the Keynesian model. This is because the economy experienced high levels of unemployment and significant declines in output, which are characteristic of a demand-driven recession. The classical model and the idea that increases in aggregate demand will increase the price level but leave real GDP unchanged do not account for these economic developments. Additionally, a vertical short-run aggregate supply curve is inconsistent with the observed behavior of prices and real GDP during the period.

Which One of the Following Statements Is TRUE