Which of the following statements is consistent with what happened during the Great Recession (2007-2009)?

• A. Government spending was drastically reduced to balance the budget.
• B. Many banks faced significant losses due to defaults on subprime mortgages.
• C. Housing prices increased steadily throughout the period.
• D. Unemployment rates fell sharply as the economy rapidly expanded.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the context of the Great Recession (2007-2009), which was a severe global economic downturn triggered by the collapse of the housing bubble and financial crisis.
2. Step 2: Analyze the statement about government spending. During the Great Recession, many governments increased spending to stimulate the economy, rather than drastically reducing it to balance the budget.
3. Step 3: Evaluate the statement about banks and subprime mortgages. The crisis was largely caused by defaults on subprime mortgages, which led to significant losses for many banks and financial institutions.
4. Step 4: Consider the statement about housing prices. Housing prices actually fell sharply during the Great Recession due to the bursting of the housing bubble, not increased steadily.
5. Step 5: Review the statement about unemployment rates. Unemployment rates rose significantly during the Great Recession as the economy contracted, so they did not fall sharply.