Chapter 35, Problem 7MCQ

To determine

The correct option which led to recovery from the Great Depression

Answer to Problem 7MCQ

From the available options, the correct option is expansionary fiscal policy by politicians persuaded by Keynesian economics.

Explanation of Solution

As Keynesian economics specified that the variations in aggregate demand impact the aggregate output and through these variations according to this theory, expansionary fiscal policy was used by policy makers or politicians in economy to recover from the Great Depression as it offered tax cuts or reduction in tax, high government spending, transfer payments, etc. that improved the economy during the time period (from 1929 to 1939) of Great Depression. Therefore, the correct option is b (expansionary fiscal policy by politicians persuaded by Keynesian economics) and all other options are incorrect because rate of natural hypothesis stated that inflation rate would not remain steady until the unemployment rate reaches its natural or normal level, only decrease in interest rates was not helpful to recover from depression in economy, and there was no role of new classical macroeconomics in recovery of economy from Great Depression.

Economics Concept Introduction

Introduction: The Great Depression was a particular time period from 1929 to 1939 when economy went down or there was economic depression.