Those who teach the AS/AD model may do the example of the big drop in AD after 1929. Then you are supposed to show two alternatives; either the Keynesian policy of boosting AD to try to speed up the recovery, or merely waiting for the AS curve to shift right as wages and prices adjust downward.
After unemployment hit 10.8% in late 1982, Volcker opted for fast NGDP growth and we got a fast recovery. This morning the BEA announced that NGDP grew a bit over 4% in the first quarter. While the rate for the year will probably be somewhat higher, it is clear that the Fed has decided to rely on the self-correcting mechanism this time, and just wait for the long and painful adjustment in wages and prices to play itself out. If this is the strategy, then it would have been better not to have recently boosted minimum wage rates by 40%, quadrupled the duration of UI, passed a health care tax increase, and cracked down on immigration.
Let’s hope the euro crisis doesn’t trigger another drop in AD. (I’m cautiously optimistic it won’t, but we are in uncharted waters.)