Assertion (A): The Great Depression made economists think about the functioning of the economy in a new way.
Reason (R): The Great Depression showed that an economy may have long lasting unemployment, which the classical tradition did not expect.
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Both (A) and (R) are true and (R) is the correct explanation of (A).
The classical tradition expected every willing worker to find a job. The Depression brought long lasting unemployment, and this pushed economists to think afresh.
Assertion (A): The Great Depression made economists think about the functioning of the economy in a new way. — True. Out of this new thinking, macroeconomics was born.
Reason (R): The Great Depression showed that an economy may have long lasting unemployment, which the classical tradition did not expect. — True. Output and employment fell by huge amounts.
Why R explains A? The old theory said unemployment could not last. When it did last, that theory could not explain the facts. So economists had to find a new way to study the economy.
NCERT (2026-27): “1.1 Emergence of Macroeconomics … The dominant thinking in economics before Keynes was that all the labourers who are ready to work will find employment and all the factories will be working at their full capacity. This school of thought is known as the classical tradition.” “… In USA, from 1929 to 1933, unemployment rate rose from 3 per cent to 25 per cent … These events made economists think about the functioning of the economy in a new way. The fact that the economy may have long lasting unemployment had to be theorised about and explained. Keynes’ book was an attempt in this direction. …” |