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Macroeconomics: Suppose a wave of bank failures with origin in housing markets leads to a stock...

Macroeconomics:

Suppose a wave of bank failures with origin in housing markets leads to a stock market crash (as was the case in US in 2007). Utilize the q theory and the Aggregate Demand-Aggregate Supply Model to analyze the effects on investment, consumption, and income

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Answer #1

we know that following are impacts on investment consumption and income

INVESTMENT:-

crash of stock market led to the fall in aggregate demand and economic activities due to fear of losing money in near future .thus all business activities got a major setback in form of fall in investment

CONSUMPTION:-

fall in economic activities and investment caused fall in the consumption

INCOME LEVEL:-   

income level went down due to the fall in aggregate demand aggregate effective demand fall aggregate effective demand caused fall in the aggregate supply in economic thus,when there are scarce investment ,economic and consumption activities ,then income automatically falls,

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