Use the Following Graph to Answer the Following Questions

question 47

Multiple Choice

Use the following graph to answer the following questions.This graph depicts an economy where aggregate demand has decreased,with no change in either short-run aggregate supply (SRAS) or long-run aggregate supply (LRAS) .

-During the Great Depression,the aggregate price level and real gross domestic product (GDP) both decreased,as depicted in the graph.Unemployment increased to record levels.Which of the following best explains why this happened?

• A) A sudden increase in oil prices caused inflation and a deep recession.
• B) A stock market crash,large numbers of bank failures,an increase in tax rates,and a tight money supply caused a recession.
• C) A rapid decline in housing prices led to problems in the loanable funds market and a recession.
• D) A significant decline in military spending following the end of a war led to a recession.
• E) A sharp recession followed the United States abandoning the gold standard.

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Definitions:

MPS

Marginal Propensity to Save, which is the proportion of an increase in income that is saved rather than spent on consumption.

Saving

The process of setting aside a portion of current income for future use, typically in the form of investments or deposit accounts.

Disposable Income

Economic latitude for households in spending and saving after the removal of income taxes.

APS

Automatic positioning system; however, in an economic context, it often refers to the Average Propensity to Save, indicating the proportion of income that is saved rather than spent.