Question

When the housing market crashed in 2007, Keynesian economists might have predicted a:

a) Decrease in government spending
b) Increase in consumer spending
c) Decrease in unemployment
d) Increase in interest rates

Answer 1

The correct answer is option b. Keynesian economists might have predicted a decrease in consumer spending when the housing market crashed in 2007.

Step-by-step explanation:

In the Keynesian framework, economists might have predicted a decrease in consumer spending when the housing market crashed in 2007. This is because a decline in the housing market leads to a decrease in people's wealth and confidence, causing them to cut back on their spending. Keynesian economists believe that government intervention is necessary to stimulate the economy during a recession, so they would not predict a decrease in government spending.

While the housing market crash may have led to an increase in unemployment, it is not the prediction made by Keynesian economists. Lastly, an increase in interest rates would not be predicted by Keynesian economists as a result of the housing market crash.