The changes in aggregate demand and aggregate supply as a result of the housing bubble collapse caused output to:

Question

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The collapse of the housing bubble led to a decrease in aggregate demand as consumers were unable to spend as much due to lost wealth and decreased confidence in the economy. At the same time, the burst of the housing bubble led to an oversupply of homes and a decrease in construction, causing a decrease in aggregate supply. These two factors combined caused a sharp decrease in output, resulting in a recession in the economy.

The Changes in Aggregate Demand and Aggregate Supply as a Result