28 During the Great Depression the US government believed that deflation was caused by a collapse in the prices of stock and other assets, reducing the levels of wealth and confidence. The diagrams...

Extracted text: 28 During the Great Depression the US government believed that deflation was caused by a collapse in the prices of stock and other assets, reducing the levels of wealth and confidence. The diagrams show two approaches to counter deflation. diagram Y diagram Z price level price level AS, „AS2 P2 AS P, P2 P, `AD, `AD, AD, real GDP real GDP Given this belief, which policy should the US government have used, in an attempt to remove the deflation and which diagram represents the intended outcome of the policy? policy intended outcome A decrease interest rates diagram Y B reduce corporation tax diagram Z increase interest rates diagram Z D reduce corporation tax diagram Y