To Explain the Great Depression, a Model with Perfectly Flexible

question 43

Multiple Choice

To explain the Great Depression, a model with perfectly flexible wages and prices would have to assume that

• A) the people counted as unemployed during the period did not want to work, so that their potential contribution would not be part of potential GDP.
• B) none of the capacity idled by the downturn was productive, so that its potential contribution would not be part of potential GDP.
• C) some sort of disturbance caused potential GDP to fall dramatically over a period of one or two years.
• D) all of the above.
• E) none of the above.

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Definitions:

Inventories

The complete list of items such as property, goods in stock, or the contents of a building.

Accounts Payable

The amounts due by a company to its suppliers or creditors for goods and services received but not yet paid for.

Net Cash Inflow

The difference between the cash received and cash expended in a given period, resulting in an increase in cash holdings.

Financing Activities

Cash flows related to actions that alter the equity or borrowings of an entity, reflecting how a business funds its operations and investments.