According to Professor Tyler Cowen, the Great Recession was caused by a number of different factors. Cowen outlines 4 distinct and complicated problems which led to the downturn:
• A drop in the aggregate demand • A “horribly” performing banking sector • Problems with monetary policy • An increase in the “risk premium”
Prof. Cowen explains why one economic model isn’t sufficient to explain the economic downturn. He shows how several different economic models can be used to explain both the cause and the effects of the recession.