Question

if keynesian economists were analyzing the oncoming recession starting in 2007 from the housing market crash, what might they have predicted?

Answer 1

According to the Keynesian school of thoughts, the key factors that determine equilibrium output is aggregate demand. With the crashing of the housing market, there is a deep decline in household wealth because a significant fraction of household wealth is in the form of housing. Reduced wealth leads to reduced consumption, which lowers aggregate expenditure.

What is meant by household wealth?

Household wealth is the difference between the value of a household's assets and the value of its liabilities and is one of the key determinants of private consumption.

To learn more about Household wealth, refer

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Complete Question is,

a. A decline in household wealth leading to a decrease in consumption expenditure.

b. Expected future incomes increasing and an increase in home purchases.

c. Declining tax revenues with cause a decrease in government spending.