Which of these is one major reason for the decline in aggregate demand that cont

Question

Which of these is one major reason for the decline in aggregate demand that contributed to the latest recession in the U.S? A) falling oil prices B) ever increasing housing prices C) the financial crisis D) the decline in Federal spending Which of these is one major reason for the decline in aggregate demand that contributed to the latest recession in the U.S? A) falling oil prices B) ever increasing housing prices C) the financial crisis D) the decline in Federal spending A) falling oil prices B) ever increasing housing prices C) the financial crisis D) the decline in Federal spending

Explanation / Answer

Correct option: (b) ever increasing housing prices

Reason: Before the 2008 crisis struck, banks were giving out too many home loans to the Americans, leading to increased demand for houses in the US. This increase in demand for houses shifted the demand curve to the right, leading to an ever increasing increase in the price of houses, which led people to demand more loans and mostly started to default on their original loans.

This led to panic and recession in the economy. This is also known as housing bubble burst.

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