Question

Which of the following best summarizes the main causes of the Great Recession?

a. The end of overseas war efforts led to a deep decrease in federal spending, which reduced employment and caused a recession.
b. The stock market collapsed following the end of a bubble in technology stock prices, which caused a decrease in investment spending and a recession.
c. The collapse of housing prices led to decreased wealth and significant problems in financial markets, as well as a decrease in expected income and a stock market collapse.
d. Oil-producing countries deliberately raised the price of petroleum, leading to inflation and a deep recession.
e. The Federal Reserve raised short-term interest rates very high in an effort to decrease inflation, which also drove the economy into a recession.

Answer 1

The main causes of the Great Recession were the collapse of housing prices, significant issues in financial markets due to failing mortgage-backed securities, and reduced consumer spending and income leading to widespread economic hardship.

Step-by-step explanation:

The correct answer to the question is c. The collapse of housing prices led to decreased wealth and significant problems in financial markets, as well as a decrease in expected income and a stock market collapse. The Great Recession began in December 2007 and lasted until June 2009, severely impacting the global economy. Key factors contributing to this economic crisis included a bursting housing bubble that led to a drastic fall in home values, a subsequent crisis in the financial markets as mortgage-backed securities lost value, and a significant reduction in consumer spending due to decreased wealth and higher unemployment rates.

These issues were compounded by job losses, business closures, and a sharp decline in stock prices. The U.S. government and the Federal Reserve Bank responded with aggressive fiscal and monetary policies to stabilize the financial markets and aid affected individuals, for example, through the American Restoration and Recovery Act, which offered tax benefits, car purchasing incentives, and extended unemployment benefits.