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« Latest Federal Stimulus Program Will NOT Help Housing Market | Main | Did Government Cause the Housing Crisis? »

December 01, 2008



According to Keynes, the root cause of an economic downturns is an insufficient aggregate demand. When the total demand for goods and services declines, businesses throughout the economy see their sales fall off. Lower sales induce firms to cut back production and to lay off workers. Rising unemployment and declining profits further depress demand, leading to a feedback loop with a very unhappy ending.

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