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Author Question: Most recessions in the United States since World War II have begun with A) a decline in ... (Read 84 times)

yoooooman

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on: Jun 29, 2018
Most recessions in the United States since World War II have begun with
 
  A) a decline in residential construction. B) a rapid increase in the price level.
  C) a stock market crash. D) a substantial number of bank failures.

Question 2

Explain how a stock market crash has the potential to lead to a recession in an economy.
 
  What will be an ideal response?


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flexer1n1

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Reply #1 on: Jun 29, 2018
Answer to Question 1

A

Answer to Question 2

A stock market crash is essentially a substantial decrease in the average price of stocks. Stocks are a part of real wealth. A stock market crash decreases the value of stocks which decreases real wealth. Real wealth is an important determinant of consumption spending. If real wealth declines, so does consumption spending. Therefore, a stock market crash will result in a decline in consumer expenditures. This will result in a decline in GDP. If the decrease in GDP is substantial enough, this can lead to a recession.


yoooooman

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Reply 2 on: Jun 29, 2018
Thanks for the timely response, appreciate it

Dominic

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Reply 3 on: Yesterday
Excellent

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