During the Great Depression
A)there is good evidence that the LM curve was horizontal.
B)there was almost perfect price flexibility.
C)wages fell continuously.
D)there was a major shift in aggregate demand.

Question

Quizplus · Accepted Answer

During the Great Depression, there was a major shift in aggregate demand due to a decrease in consumer and investor confidence which led to a significant decline in consumption and investment spending. This shift in aggregate demand is one of the main factors that contributed to the severity and length of the economic downturn. Choices A, B, and C are incorrect because they do not accurately reflect the economic conditions during the Great Depression. The LM curve was not necessarily horizontal, there were significant price rigidities, and while wages did fall, they did not fall continuously throughout the entire period.