Aggregate Demand and Aggregate Supply

Recessionary and Inflationary Gaps and Long-Run Macroeconomic Equilibrium


Using the scenario of the Great Depression of the 1930s, as analyzed in the previous Try It!, tell what kind of gap the U.S. economy faced in 1933, assuming the economy had been at potential output in 1929. Do you think the unemployment rate was above or below the natural rate of unemployment? How could the economy have been brought back to its potential output?