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Chapter 6: Q1. (page 257)

Why was it profitable for Montgomery Ward to close some of its stores during the Great Depression?

Short Answer

Expert verified

Closing some stores saved the production costs, and supply became equal to the demand, which gained profit for the firm.

Step by step solution

01

Explanation

During the great depression of the 1930s, the aggregate demand fell significantly and could not recover till 1940. Due to the decline in aggregate demand, there was overproduction in the economy. Also, the economy was short of credit.

Thus, closing some stores appeared helpful for Montgomery Ward because it saved the company's costs. Production was reduced to lower levels until the supply matched the level of demand, and losses of the firm were abolished.

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Most popular questions from this chapter

Why do we talk about business cycles for the economy as a whole, rather than just talking about the ups and downs of particular industries?
  1. Which of the following questions involve microeconomics, and which involve macroeconomics? In each case, explain your answer.
  2. Why did consumers switch to smaller cars in 2008?
  3. Why did overall consumer spending slow down in 2008?
  4. Why did the standard of living rise more rapidly in the first generation after World War II than in the second?
  5. Why have starting salaries for students with economics degrees risen sharply of late?
  6. What determines the choice between rail and road transportation?
  7. Why did laptops get much cheaper between 2000 and 2017?
  8. Why did inflation fall in the 2010s?

Which of the following reflect comparative advantage, and which reflect macroeconomic forces?

  1. Thanks to the development of huge oil sands in the province of Alberta, Canada has become a BUSINESS CASE exporter of oil and an importer of manufactured goods.
  2. Like many consumer goods, the Apple iPad is assembled in China, although many of the components are made in other countries.
  3. Since 2002, Germany has been running huge trade surpluses, exporting much more than it imports.
  4. The United States, which had roughly balanced trade in the early 1990s, began running large trade deficits later in the decade, as the technology boom took off.

Argentina used to be as rich as Canada; now it’s much poorer. Does this mean that Argentina is poorer than it was in the past? Explain.

In 2008, problems in the financial sector led to a drying up of credit around the country: home-buyers were unable to get mortgages, students were unable to get student loans, car-buyers were unable to get car loans, and so on.

  1. Explain how the drying up of credit can lead to compounding effects throughout the economy and result in an economic slump.
  2. If you believe the economy is self-regulating, what would you advocate that policymakers do?
  3. If you believe in Keynesian economics, what would you advocate that policymakers do?
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