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During the Great Depression, U.S. unemployment soared above 20 percent from 1933 to 1935, even though the number of available workers, factories, and machinery had not shrunk. What did Keynes argue this evidence showed about the cause of the Depression?
AThe economy's ability to supply goods had genuinely collapsed
BA lack of demand, not a lack of supply capacity, caused output to fall
CSay's law was confirmed by the high unemployment rate
DTechnology from the 1920s had been forgotten by the 1930s
Answer & Solution
Correct answer: B. A lack of demand, not a lack of supply capacity, caused output to fall
1. If Say's law held strictly, a collapse this severe would require a matching collapse in the economy's ability to supply goods.
2. But workers, machines, and technology from the 1920s were all still available during the Depression.
3. Keynes argued the real problem was inadequate demand, which left firms with no incentive to produce at full capacity.
4. This is evidence for Keynes' law, not a confirmation of Say's law, so option C reverses the conclusion.
5. Option D is a detail used to rule out a supply-side explanation, not the actual cause Keynes identified.
_Source: OpenStax Principles of Macroeconomics for AP Courses (CC BY 4.0), Ch 10 "The Aggregate Demand/Aggregate Supply Model", section 10.1 | Macroeconomic Perspectives on Demand and Supply_
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