(Consider This) In the mainstream view, the severe recession of 2007-2009 was caused by
A) an aggregate-supply shock, which caused the AS curve to shift left.
B) a ﬁnancial crisis that caused a shrinkage in investment and consumption spending, thereby reducing aggregate demand.
C) monetary factors, speciﬁcally the excessive expansion of money supply brought about by the Federal Reserve, starting in the recession of 2001.
D) a huge and sudden drop in the velocity of money, causing a signiﬁcant reduction in both nominal and real GDP.

Question

Quizplus · Accepted Answer

The mainstream view is that the severe recession of 2007-2009 was primarily caused by a financial crisis that led to a shrinkage in investment and consumption spending, which in turn reduced aggregate demand. This explanation emphasizes the role of factors such as the housing bubble, subprime lending practices, and the collapse of Lehman Brothers in precipitating the crisis. While other factors may have played a role as well, such as the excessive expansion of the money supply or a drop in the velocity of money, they are generally considered secondary to the financial crisis in causing the recession.

(Consider This) in the Mainstream View, the Severe Recession of 2007-2009