In 2007, housing prices dropped almost
overnight as a result of what some economists referred to as a correction from
prices that formed in a market bubble. Financial assets also dropped in value.
The subsequent changes in GDP could be best explained as:
A. a movement along the aggregate demand (AD) curve to a lower price level
and less output.
B. a shift in the aggregate supply (AS) curve, such that supply decreased
at all price levels.
C. a leftward shift in the aggregate demand (AD) curve as a consequence of
Investors who already owned homes saw
the equity in their homes and their
retirement investment portfolios shrink. Therefore, simply put, they were less
willing to make purchases. This
evaporation of consumption spending was a driver of the recession that