Which one of the following factors contributed to the decline in real output during the Great Depression?
A) deflation, which changed the terms of long-term contracts and discouraged long-term exchange
B) inflation, which reduced the value of the dollar and eroded the savings of the elderly
C) stable monetary policy, which caused business decision makers to lose confidence in the Fed's ability to fine-tune the economy
D) establishment of the Federal Deposit Insurance Corporation

Question

Quizplus · Accepted Answer

Deflation caused a decrease in the price level, which in turn made it more expensive for businesses to produce goods and discouraged consumption. This led to a decrease in real output during the Great Depression. Inflation (B) and stable monetary policy (C) were not factors contributing to the decline in real output, and the establishment of the Federal Deposit Insurance Corporation (D) was a response to the Great Depression, not a cause of the decline in real output.

Which One of the Following Factors Contributed to the Decline