After the American Civil War, many prominent Southerners lamented the fact that the South “overproduced” cotton and “underproduced” food. In fact, the South did import a very large percentage of its food. Nevertheless, rather than reduce cotton production and grow more food, Southern farmers did the opposite because
A. they were irrational and distraught over the loss of slavery.
B. the South had a comparative advantage in cotton production.
C. the North had a comparative advantage in cotton production.
D. corn was absolutely cheaper to produce in the North.
Answer: B
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Refer to the above figure. An increase in aggregate demand between real Gross Domestic Product (GDP) levels Y0 and Y1
A) would not increase output since the economy is already working at full capacity. B) would have no effect on the price level. C) would cause price levels to fall. D) would most likely result in some inflation.
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