When people became less concerned with the underlying value of their houses and instead focused on the expectations of the prices of their houses increasing, ________ occurred.
A)stagflation
B)an automatic destabilizer
C)a housing bubble
D)a supply shock
E)a decrease in household debt

Question

Quizplus · Accepted Answer

When people become more focused on the expectations of prices of their houses increasing, it leads to a speculative environment where demand for housing increases, prices rise, and this leads to a bubble. Eventually, when the prices reach a peak and start to fall, people panic and sell off their houses, leading to a downward spiral in prices and a crash in the housing market. This phenomenon was noticed in the 2008 global financial crisis, where the housing bubble in the US burst, leading to a severe economic recession.

When People Became Less Concerned with the Underlying Value of Their