ECO 561 The Housing Industry Analysis During the Great Recession

In December of 2007, the US economy fell into a tremendous recession that would become known as the Great Recession. This recession impacted every industry and had worldwide economic impact. The recession was caused by a number of factors but one of the major factors was an over extension of credit to consumers and poor lending practices which ultimately led to consumers being over extended. These spending and lending practices would ultimately cause a massive failure in most financial markets when housing market bubble burst creating a cascading effect in which unemployment would rise leaving consumers unable to pay their debts. This recession is best understood through an analysis fo the automobile industry.

Two understand the Great Recession, one needs to understand the short run economics. “The short run is a period of time in which the quantity of at least one input is fixed and the quantities of the other inputs can be variable” (O’Sullivan & Sheffrin, 2003) . One can see an example of this type of economics in terms of US manufacturing in which the only factor that changed was the cost of foreign labor.

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