00:01
When the fed raises interest rates, it affects the overall interest rates in the economy.
00:07
So this increase in interest rate leads to higher mortgage rates.
00:27
As a result, the monthly mortgage payment for these homeowners increase leading to fall in their disposable income.
00:33
This is because a higher portion of their income is now allocated towards paying off their mortgage, leaving them with less money for other expenses.
00:41
So, keynesian multiplier explains how changes in spending can have multiplier effect in overall economy.
01:11
In the context of housing crisis, the initial shock was a collapse of housing market and the subsequent increase in mortgage defaults.
01:18
This lead to decrease in consumer spending as house owners faced financial difficulties and had less disposable income.
01:26
The decrease in consumer spending then affected businesses leading to decrease in their revenue and causing layoffs.
01:40
So the layoffs further reduced customer spending, creating a self -reinforcing cycle of economic decline.
01:48
As more people lost their homes and jobs, the number of homeless people increased...