Praxis II Citizenship

Answer: C - Economic problems are usually caused by an imbalance between supply and demand. The collapse of the U.S. housing market in the early 21st century is a good example. Economic growth during the 1990s led to a boom in the housing market, so builders increased their production (supply) to meet the increasing demand for new homes. As the builders hoped to continue increasing their profits, their supply of new homes soon surpassed the production rate needed to achieve equilibrium in the housing market, causing the supply to exceed the demand. With too few consumers buying homes, the builders started to lose money on the investments they had in products that were not selling. This caused builders (and eventually producers of home-related goods and services) to lay off workers or reduce employee hours to offset their financial losses. That job loss (or income decrease) caused the number of homebuyers to decrease even more, further exacerbating the problem.