The statement that "economists mostly agree that the Great Depression was principally caused by factors that shifted short-run aggregate supply left" is not accurate. While the Great Depression was a complex and multifaceted economic crisis, the consensus among economists is that it was primarily caused by a combination of factors that affected both aggregate demand and aggregate supply, rather than solely shifting short-run aggregate supply left.
Key factors contributing to the Great Depression include:
1. **Stock Market Crash of 1929:** The Wall Street Crash of 1929 was a significant trigger for the Great Depression. It resulted in a loss of confidence in the financial system and a sharp decrease in consumer and business spending.
2. **Bank Failures:** A large number of banks collapsed during the early years of the Depression, leading to a severe contraction in the money supply and a credit crunch.
3. **Reduction in Aggregate Demand:** The sharp decline in consumer spending and business investment reduced aggregate demand, contributing to a decrease in production and widespread unemployment.
4. **International Factors:** Global events, such as protectionist trade policies (Smoot-Hawley Tariff Act) and the global economic downturn, also played a role in exacerbating the economic crisis.
5. **Monetary Policy Mistakes:** The Federal Reserve's monetary policy decisions, including a failure to act as a lender of last resort to stabilize the banking system, have been criticized for worsening the economic downturn.
6. **Fiscal Policy:** Government fiscal policy was contractionary during much of the Depression, as governments attempted to balance budgets, which further reduced aggregate demand.
While factors affecting short-run aggregate supply, such as changes in productivity and labor force participation, may have played a role, most economists would emphasize the importance of these demand-side factors in causing and prolonging the Great Depression. Moreover, modern economic analysis recognizes the importance of both aggregate demand and aggregate supply factors in understanding economic downturns.
It's essential to note that the Great Depression is a complex historical event with multiple contributing causes, and economic scholars continue to study and debate its precise origins and lessons. However, the idea that it was primarily caused by factors shifting short-run aggregate supply left is not widely accepted among economists.