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which of the following was one of the causes of the aggregate demand shifts during the...

which of the following was one of the causes of the aggregate demand shifts during the Great Recession?
a) an increase in import taxes
b) a reduction in the prices of homes
c) an increase in the natural rate of unemployment
d) a shift in the balance of trade
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Answer #1

Option 'b' is correct.

*a reduction in the prices of homes.

Great recession was caused by the burst of the housing boom. The sub-prime crisis was caused by the burst of the housing boom. The housing boom had collapsed because of the supply far exceeded the demand results a sharp decline in housing prices. Due to sharp decline in housing prices, house owners started selling their houses to minimize their losses and financial firms their collateral to recover their loans as much as they could. As a result, number of house sellers far exceeded the number of buyers. This created a vicious circle of increasing supply with falling demand causing further fall in reality prices. As a result,housing prices had declined by over 50% in recession.

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