Question

Using the aggregate demand and aggregate supply model, explain what changes occurred during the Great Depression in the 30’s.

Answer 1

The great depression of 30's starts to begin with fall of stock market in october 1929 which lead to have a great panic among the world stock market and many investors leave the market to avoid risk . after this incident for several years the global economy faces a sudden and huge fall in consumption and investment which leads to have a huge decline in the agg demand of the economy.Due to this fall in consumption and investment , AD curve shifts downward thus there was a sharp decline in the price level along with fall in the real output . Economic growth starts to decilne , production falls due to fall in investment and unemployment increases as many companies started wipping out workers .The global economy enter into a great recession for this sudden sharp fall in the Agg demand along with this IS curve shifts to the left havng a fall in nominal int rate and a fall in real output.