Question

Many economists have argued that the Federal Reserve should have taken actions to burst the U.S. housing bubble. However, bursting of the housing bubble by the Federal Reserve would have caused: the LRAS curve to shift inward. the SRAS curve to shift inward. interest rates to fall even further. the AD curve to shift inward.

Answer 1

d. the AD curve to shift inward.

Step-by-step explanation:

A housing bubble refers to an economic situation in housing markets where the prices of houses increases due to a rapid increase in demand, when the supply rate is low. Many Economists argued, Federal Reserves intervention to burst the bubble could have cooled down the situation. But doing so will only make the home prices to become unsustainable and this will lead to an inward movement of the aggregate demand curve.