Author Question: Using a graph, analyze the Great Depression from a Keynesian perspective. What happened to ... (Read 89 times)

fnuegbu · **on:** Jun 30, 2018

Using a graph, analyze the Great Depression from a Keynesian perspective. What happened to unemployment?

What will be an ideal response?

Question 2

At the point at which planned real consumption spending is equal to real disposable income

A) the consumption function is above the 45-degree line.
B) the consumption function intersects the savings function.
C) the consumption function intersects the 45-degree line.
D) the consumption function is below the 45-degree line.

ryansturges · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

In the below figure, the equilibrium before the depression was at a price level of 100 and real GDP of 1 trillion. The depression was caused by a reduction in aggregate demand to AD1933. Because prices were not flexible, real GDP fell to 700 billion. The reduced output would be associated with a large increase in unemployment.

Answer to Question 2

C