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 have shifted left by less than aggregate supply.
B)It would have to have shifted left by more than aggregate supply.
C)It would have to have shifted right by less than aggregate supply.
D)It would have to have shifted right by more than aggregate supply.

Question

Quizplus · Accepted Answer

If long-run aggregate supply shifted left during the Great Depression, it means that the economy's potential output decreased. Therefore, to be consistent with the decrease in output, aggregate demand would have had to shift left by a corresponding amount. However, during the Great Depression, the actual decrease in output and the price level was much greater than the decrease in potential output. This suggests that aggregate demand must have shifted left by more than long-run aggregate supply to explain the observed decrease in output and prices. Thus, the correct answer is B.

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