The bursting of the housing bubble and the panic of 2008

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"The bursting of the housing bubble and the Panic of 2008 caused both businesses and households to cut back on their spending in 2 ways. 1st financial market disruptions made it difficult for businesses to borrow funds for investment spending and for consumers to borrow funds for purchasing housing and motor vehicles. Second, the financial crisis increased the level of uncertainty about the expectations that led to a reduction in autonomous spending also spending self-determining o/ps." Source: Robert H. Frank, Ben S. Bernanke, Louis D. Johnston and Nilss Olekalns in 2010, economy update 2010, Sydney: McGraw-Hill.

Elucidate how each change mentioned in the article impacts upon the aggregate expenditure model and then that model elucidate how such changes result in a new equilibrium in. Your answer should encompass discussion of changes to the level of inventories.

Reference no: EM13355177

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