According to the Keynesian school of thoughts, the key factors that determine equilibrium output is aggregate demand. With the crashing of the housing market, there is a deep decline in household wealth because a significant fraction of household wealth is in the form of housing. Reduced wealth leads to reduced consumption, which lowers aggregate expenditure.
<h3>What is meant by household wealth?</h3>
Household wealth is the difference between the value of a household's assets and the value of its liabilities and is one of the key determinants of private consumption.
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Complete Question is,
a. A decline in household wealth leading to a decrease in consumption expenditure.
b. Expected future incomes increasing and an increase in home purchases.
c. Declining tax revenues with cause a decrease in government spending.