The correct option is 1 and 3 only.
Explanation
The Great Depression of 1929 was a severe worldwide economic downturn that originated in the United States. It exposed the limitations of classical economic theories regarding market self-correction and necessitated a new framework for understanding economy-wide phenomena.
Statement-wise Analysis:
- Statement 1 is Correct: The Great Depression was triggered by a stock market crash and resulted in a catastrophic collapse in aggregate demand. This led to a sharp decline in the demand for goods, production levels, and investment in North American markets and subsequently the global economy.
- Statement 2 is Incorrect: The unemployment situation deteriorated drastically during this period. While the unemployment rate in the USA was around 3 % in 1929, it did not remain constant; it surged to approximately 25 % by 1933.
- Statement 3 is Correct: The inability of classical economics to explain the prolonged mass unemployment and economic stagnation provided the context for the emergence of Macroeconomics as a separate discipline. This shift is largely attributed to John Maynard Keynes and his work, The General Theory of Employment, Interest and Money (1936), which focused on aggregate variables rather than individual markets.
Key Takeaway: The Great Depression highlighted the failure of the "invisible hand" to restore full employment, leading to the Keynesian Revolution and the establishment of Macroeconomics to study aggregates like total output and employment.