How did the collapse of the housing bubble cause a contraction in output?
A. Because banks were unwilling to lend, many businesses were suddenly unable to access credit for their day-to-day needs.
B. Because consumers lost confidence in the banking industry, they stopped depositing money, so banks could no longer lend.
C. When banks wanted to make loans, but couldn't find any credit-worthy customers to loan to.
D. When homeowners lost value in their homes, they stopped saving, which reduced banks' ability to lend.
Answer: A
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A sudden increase in the demand for newly built homes will
a. decrease the demand for lumber, bricks, and steel. b. decrease the demand for construction workers and architects. c. increase the marginal product of workers in the construction industry. d. increase the demand for construction workers and architects.
Alfonso has noticed that increases in unemployment insurance claims are associated with recessions, and therefore he advocates limits on unemployment insurance so as to prevent recessions. Mary has noticed that most drug addicts once attended schools, and therefore she advocates getting rid of schools so as to prevent drug addiction
a. The reasoning of both Alfonso and Mary suffers from the omitted variable problem. b. The reasoning of both Alfonso and Mary suffers from the reverse causality problem. c. Alfonso's reasoning suffers from the reverse causality problem, and Mary's reasoning suffers from the omitted variable problem. d. Mary's reasoning suffers from the reverse causality problem, and Alfonso's reasoning suffers from the omitted variable problem.