You pointed out the lax lending standards of banks and the Federal Reserve. Db you feel that the Fed contributed to these reduced standards? The Fed ensured substantial liquidity. but were they:F reallair responsible for the lending bf subprime So many factors are there behind the great recession of 2007-2009 US economy . Which caused directly or indirectly the global economy as well . USA face a subprime mortgage crisis at that time due to several reasons which include the Federal Reserve lowering the Federal funds rate and creating a flood of liquidity in the economy which results in international trade imbalances and lax lending standards contributing to high levels of developed country household debt and real-estate problems that have since burst also the US government housing policies; and limited regulation of non-depository financial institutions. Aggregate demand is the total desired quantity of goods and services that are brought by consumer household, private investors government and foreigners at various price level, while other things being held constant . Aggregate supply is the total output of goods and services that firms wants to produce at each possible price level .The sharp fall in aggregate demand caused great depression and decline in investment demand which happened due to collapse of marginal efficiency of capital [expected rate of return] . There are many factors that causes shift in AS! AD curyes for Keynes AS curye during money illusion focused more on the stickiness of money wages rather than the change in real wages. The actual level of output and employment is not determined by only supply side factors. The actual level of output and employment is not determined by only supply side factors. With the change in AD price levels also changes . Keynesian View of level of AD is important factor determining the Ieyel of output and employment