Which of the following is one reason for the decline in aggregate demand that led to the recession of 2007-2009?
A)falling oil prices
B)an increase in net exports
C)the end of the housing bubble
D)a decline in government spending

Question

Quizplus · Accepted Answer

The end of the housing bubble led to a decline in housing prices and therefore a decrease in household wealth. This decrease in wealth reduced consumer confidence and spending, ultimately leading to a decline in aggregate demand.

Answer: D 
 A decline in government spending can lead to a decrease in aggregate demand, as government purchases are a component of GDP. If government spending falls, it can lead to a decrease in overall economic activity and contribute to a recession. However, this was not the primary reason for the recession of 2007-2009.

Which of the Following Is One Reason for the Decline